Friday Options Recap

by: Frederic Ruffy


The major averages opened higher on positive economic data, but are in the red late Friday following another round of selling in the tech sector. The major averages opened higher after data, released an hour before the exchanges opened in New York, showed the US economy growing at a 5.7 percent annual rate in the fourth quarter, which was better than the 4.7 percent increase economists had predicted. The Employment Cost Index [ECI] rose .5 percent, and also better than the .4 percent economists had expected. Better-than-expected manufacturing [PMI] and consumer sentiment data [U of Michigan] also helped set a positive tone for morning trading.

However, the morning advance didn't last long as a number of widely held tech stocks came under pressure. Microsoft (NASDAQ:MSFT) opened higher and ran towards $30 per share, but is now down 4.5 percent to $27.62. While the software maker reported better-than-expected earnings, the company's CFO made cautious comments about 2010 IT spending. Apple Computer (NASDAQ:AAPL) also reversed early gains and made volatile move lower -- down $8 from yesterday's close. Qualcomm (NASDAQ:QCOM), which fell 14 percent on earnings yesterday, is off another 4 percent.

Consequently, the tech-heavy NASDAQ is down 29 points. The Dow Jones Industrial Average, which was up as much as 120 points early, is down 20 to the 10,100 mark. The CBOE Volatility Index (.VIX) added .79 to 24.52. Options volume is slowing ahead of the weekend. 5.3 million puts and 6 million calls traded (a ratio of .88, compared to a 22-day average of .75.)

Bullish Flow

Usec (USU), a supplier of low enriched uranium, is seeing relative strength and active call buying Friday on reports the Obama adminstration plans to increase government loan guarantees for new nuclear reactors. USU is up 29 cents to $3.98 and 7,800 call options traded through midday. The volume represents 14X the typical volume and compares to 380 puts. While Feb 4 calls are the most actives, some investors are showing interest in April 5 and 6 calls as well.

Bearish Flow

Qualcomm (QCOM) is seeing another day of options action, as the stock spends a second trading session taking a beating behind the woodshed. QCOM sank 14 percent Thursday after the company posted earnings that beat estimates, but guided 2nd quarter numbers lower. Today, however, Hilliard Lyons analysts came to QCOM's defense. They upgraded the stock to Buy, saying long-term secular trends towards wireless devices will benefit Qualcomm. Investors don't seem convinced. Shares are down another $1.78 to $38.70 today and the ongoing volatility in the shares is driving heavy action in the options. 159K calls and 70K puts traded so far, or 3X the recent average daily.

Implied Volatility Movers

Gannett (NYSE:GCI) puts are active and implied volatility is edging higher ahead of earnings, report due Monday. Shares are up 33 cents to $16.57 and Feb 16s are the most actives. 4200 traded (39% Bid / 58% Mid). Another 1668 Feb 17s traded (99 percent Ask). Meanwhile, average implied volatility is up 2 percent to 39 ahead of the report. Shares jumped 8 percent on the heels of its last report in mid-October and surged 29 percent when the company reported on July 15. The stock is up 375 percent since that time.

Unusual Volume Movers

Microsoft (MSFT) is seeing 3X average daily trading volume, with 417,000 contracts traded and call volume representing about 68 percent of today's activity. (NASDAQ:AMZN) is seeing 2X average trading volume, with 213,000 contracts traded and puts representing 57 percent of today's trading activity.

Motorola (MOT) is seeing 3X normal trading volume. 130,000 contracts traded, with put options representing about 87 percent of today's volume.

Unusual volume (two times or more than normal average volume) is also being seen in Sandisk (SNDK), Micron Tech (NASDAQ:MU), and Deere (NYSE:DE).