Friday Options Recap

by: Frederic Ruffy


The slow steady grind continues, with the stock market averages sporting modest gains late Friday. Stock index futures moved up along with European benchmarks in the morning hours after yields fell and fears receded in Greece's troubled debt markets. In the US, the day's news was light. The only economic stat of the day, a report on wholesale inventories at 10:00 a.m., showed an uptick of .6 percent and slightly more than the .4 percent increase that economists had expected.

The market showed little reaction to the data and, instead, volatility remains light amid rangebound trading. The Dow Jones Industrial Average has traded in a narrow 59-point span and is up 39 points. With about an hour left to trade, the CBOE Volatility Index (.VIX) was little changed at 16.46. Volume is slowing ahead of the weekend, with 5.8 million calls and 4.5 million puts traded so far.

Bullish Flow

Atlas Energy (NYSE:ATLS) gapped higher and is up $6 to $37.81 after announcing a joint venture with India's Reliance, which will include a $340 million cash payment and $1.36B in a form of drilling carry. Options volume is running 8X the normal, with 7790 calls and 1380 puts traded. April 35 and 40 calls are the most actives. Activity is being seen in May and June as well. Implied volatility is easing 2 percent to 45, as there had been increasing options action and speculation about a possible deal in recent weeks (see 3/29 color.)

Bearish Flow

Target (NYSE:TGT), which rallied Thursday on upbeat sales stores numbers and strong guidance for the first quarter, is up 21 cents to $55.85 and options volume is 2X the average daily, with 15,000 puts and 7400 calls traded. Most of the put volume was early in the day, when an investor apparently bought 4000 of the May 55 puts and sold 8000 of the May 52.5 puts, which creates a bearish 1X2 put ratio spread that offers a maximum pay-off at $52.50 per share. It might be a hedge to protect recent gains in TGT shares.

Implied Volatility Movers

Huge Print in Citigroup (NYSE:C) after an investor buys 180,000 January 2012 puts at the 2.5 line. They paid 23 cents per contract and are possibly closing a position (OI = 390k). It was not tied to stock, according to a source on the exchange floor. C is up 8 cents to $4.55 today and has rallied 43 percent over the past two months. Implied volatility has eased from about 49 to 42 during that time, amid diminishing fears about problems in the financial world. With the focus on the 2012s, today's put buyer might be looking for the volatility to pick up during the second half of 2010 and into 2011.

Unusual Volume Movers

Alcoa (NYSE:AA) options volume is running 2X the usual, with 139,000 contracts traded and call activity representing about 64 percent of the activity.

Dryships (NASDAQ:DRYS) options activity is running 4X the usual, with 111,000 contracts traded and call volume representing 91percent of the volume.

Ambac (ABK) options volume is running 20X the usual, with 59,000 traded and call volume representing 81 percent of the activity.

Unusual volume is also being seen in Boston Scientific (NYSE:BSX), Harley Davidson (NYSE:HOG), and Disney (NYSE:DIS).