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Sentiment

Volatility picked up a notch on options expiration Friday. The table was set for early losses on Wall Street after BofA (NYSE:BAC) and Citi (NYSE:C) posted stronger than expected earnings, but fell short on revenues. Google (NASDAQ:GOOG) also came under fire after reporting earnings that missed Street estimates. The early decline then gathered additional momentum after the latest U of Michigan Consumer Sentiment Index showed a drop to 66.5 in July, down from 76 the month before and much worse than the 74.5 that economists had expected. After Thursday’s horrific manufacturing data, further evidence of deteriorating consumer sentiment is weighing heavily on stock prices. Add some expiration-related volatility to the mix and the Dow Jones Industrial Average is down 230 points heading into the final hour. The CBOE Volatility Index (.VIX) added 1.96 to 27.10. Trading is active, with 6.9 million calls and 7.1 million puts traded so far.

Bullish Flow

Action in Goldman Sachs (NYSE:GS) continues. Total options volume is running 2.5X the average daily, with 109K calls and 76K puts traded. About half the volume is in the front-month July options, with players scrambling to buy and sell premium in reaction to volatility in shares and ahead of the expiration. The top trades of the day are in the October month, however, after a strategist apparently sold Oct 130 puts to buy the Oct 160 – 175 call spread. This bullish three-way spread traded at a 24-cent debit, 1750X. It’s max pay-off would be at $175 per share at the October expiration, or $27 above current levels, and would represent an increase in market value of about $15 billion. Shares are up $2.78 to $148 on news the investment bank has settled fraud allegations with the SEC for $550 million.

Bearish Flow

Big Prints in the iShares Emerging Markets Fund (NYSEARCA:EEM). Shares are down $1 to $38.84 and the July 37 – 38 put spread is sold at a penny, 20000X. About an hour later, 20000 December 27 puts were bought at 68 cents. This might be the same strategist rolling the spread to a position in deep out-of-the-money puts. Implied volatility is up about 10 percent to 33.5, as many emerging markets are likely to feel the aftershocks of today’s volatility on Wall Street when trading resumes next week.

Implied Volatility Mover

Brisk trading in the iShares Silver Fund (NYSEARCA:SLV). Shares are down 46 cents to $17.49 after silver (September) lost 49 cents to $17.87 an ounce. Much of the activity is in the front-month, with players closing out positions ahead of the expiration. August 15 puts, which already have the most open interest (95.6K), are the most actives. Nearly 30K traded and seems to include a mix of buyers and sellers. There’s been some interest in the July – Aug 16 call spread, bought at 18 cents, 2500X. Another strategist bought to open 3500 Aug 17 calls at 88 cents each on ISE. Overall, sentiment seems mixed and to reflect expectations of additional volatility in the metal during the weeks ahead. Implied volatility in SLV is up about 3.5 percent to 28.

Unusual Volume Movers

BofA (BAC) options volume is running 2.6X the usual, with 645,000 contracts traded and call volume accounting for 55 percent of the overall volume.

Ford Motor (NYSE:F) options volume is 2X the norm, with 72 percent of the trades hitting on the call side of the options chain.

Google (GOOG) options volume is 2.5X the typical levels, with 164,000 contracts and call options accounting for about 50 percent of the activity.

Increasing volume is also being seen in Vivus Pharmaceuticals (NASDAQ:VVUS), Nvidia (NASDAQ:NVDA), and the SPDR Healthcare Fund (NYSEARCA:XLV).