Friday Options Recap

by: Frederic Ruffy


Stocks are trading mixed following a busy day of economic news Friday. Data released early showed a surprise jump in retail sales, which increased by .6 percent in September, according to the Commerce Department. Economists were looking for an increase of .4 percent. Separate data showed the NY Empire State Index moving up to 15.73 in October, and also better than the 5.75 reading economists had expected. The CPI for September rose just .1 percent, which was half as much as expected. Major averages opened steady on the data, but the Dow Jones Industrial Average was lower midday amid notable weakness in the financials and ongoing concerns about problems in the banking world (see Bearish Flow). Meanwhile, the latest UofM consumer sentiment index disappointed as well, falling to 67.9 in October, from 68.5 the month before and below economist estimates of 68.5. However, a post-earnings rally in Google (NASDAQ:GOOG) is helping the technology sector. The Dow Jones Industrial Average is down 55 points, but the tech-heavy Nasdaq added 24. With forty-five minutes left to trade, the CBOE Volatility Index (.VIX) is down .10 to 19.78. Trading is active due to the expiration, with 10.2 million calls and 7.8 million puts traded so far.

Bullish Flow

Yahoo (NASDAQ:YHOO) is seeing relative strength and heavy trading in the options market after Google (GOOG) shares rallied on strong earnings. Yahoo is due to report October 19, after market. Total volume includes 149K calls and 52K puts. Nov 17 and Jan 20 calls are the most actives. One noteworthy trade is in the Jan13s, as one player apparently paid $1.25 for the bullish risk-reversal, 15400X. a more recent trade is a Jan 17.5 - 20 (1X2) call ratio spread at 20 cents, 3500X. It's similar to a Jan 17.5 - 20 - 22.5 call fly, which traded 9000X Thursday, following talk of a possible YHOO buy-out.

Bearish Flow

Options volume in BofA (NYSE:BAC) is approaching 1 million contracts. Shares are down 54 cents to $12.06 amid ongoing anxiety about the foreclosure processes and increasing worries about 'liabilities stemming from loan pools used to securitize MBS products' in the banking industry, Briefing. BAC touches new 52-week lows and implied volatility in its options is up nearly 9 percent to 55. Total volume includes 517,000 calls and 486,000 puts. Players are now jockeying for positions in Nov 12 puts and Nov 13 calls (which have traded 94000 and 73700X, respectively) ahead of earnings, due Oct 19, before market.

Implied Volatility Mover

Gap Stores (NYSE:GPS) adds 35 cents to $19.41 and bullish flow is detected in the retailer, with 16000 calls traded, or 5X the recent average daily call volume. The stock is up the day after Gap Stores had a meeting with analysts yesterday. The top trade is a block of 3910 Jan 20 calls at 88 cents when bid-ask was 86 to 89 cents. Looks like an opening call buyer. 10,200 now traded. Nov 20 and 21 calls are seeing interest as well. Implied volatility is up 9 percent to 35.

Unusual Volume Movers

Bearish activity detected in Santander Finance Preferred SA Unipersonal (STD), with 7723 puts trading, or 4x the recent average daily put volume in the name.

Bullish flow detected in General Dynamics (NYSE:GD), with 6373 calls trading, or 9x the recent average daily call volume in the name.

Bullish flow detected in WellPoint Health Networks (WLP), with 20880 calls trading, or 3x the recent average daily call volume in the name.

Increasing volume is also being seen in JP Morgan (NYSE:JPM), Apollo (NASDAQ:APOL), and Seagate (NASDAQ:STX).