Friday's Options Recap

by: Frederic Ruffy

Stocks are trading mixed in slow trade Friday. The economy was in focus early after a report released pre-market showed Gross Domestic Product increasing by 2 percent in the third quarter, which was in-line with economist estimates. Separate data released a bit later showed the Chicago Purchasing Managers Index [PMI] improving to 60.6 in October, up from 60.4 in September and ahead of expectations (58.0). However, a third report, from UofM, showed an index of consumer sentiment falling to 67.7 this month, which was down from 67.9 and below estimates of 68. At the end of the day, the good data seemed to offset the bad and the major averages are mixed heading into the final hour. The Dow Jones Industrial Average is down 20 points. The Nasdaq is up 3 points with help from better-than-expected Microsoft earnings. The CBOE Volatility Index (.VIX) added .27 to 21.15. Trading is slowing ahead of the weekend. 6.1 million calls and 4.9 million puts traded so far.

Bullish Flow

Iron Mountain (NYSE:IRM) adds 49 cents to $21.68 and options volume is 7X the average daily, driven by April 22.5 call buyers. One player bought 9000 at $1.30 each. It was tied to shares on a 50 delta. 10,400 now traded vs. 243 contracts in open interest. Shares of the Boston, MA business software company lost 6.1 percent on disappointing earnings news the day before.

Micron Tech (NASDAQ:MU) gapped at the open and is up 3.8 percent to $8.24 after the chipmaker said it's buying back and refinancing some of its convertible debt. Shares finished the day down three pennies to $7.94 yesterday and a noteworthy trade in the options was a block of 14,250 Jan 2012 calls at the $12.5 line. It was bought to open at 54 cents per contract on the ISE. Open interest increased by 13,141 to 23,552.

Bearish Flow

Research in Motion (RIMM), which is up for a fifth day and has added 16.1 percent this week on optimism for Blackberry and Playbook sales, sees an interesting spread trade midday. Shares have gained 67 cents to $56.88 on the session and one strategist pays $1.55 for the March - June 57.5 put spread, 16600X. The spread looks opening and possibly a play on shares trading above $57.5 through the March expiration, but then trading lower through June 2011. It also appears that the spread traded more than once, as volume in both contracts now exceeds 30000.

Implied Volatility Mover

CBOE Volatility Index (.VIX) is up 33 cents to 21.21 and recording its fifth consecutive gain ahead of next week's event risk - the FOMC meeting, mid-term elections, retail sales, and monthly jobs data. VIX is up 12.9 percent on the week. A noteworthy trade in the options today is a Nov 24 - Dec 22.5 put spread, apparently sold at $1.30, 51300X. Looks like they sold November and bought December, perhaps rolling a position out an additional month. VIX November options expire in 18 days. Today's action also includes a buyer of 10000 March 20 puts at 55 cents and, separately, a buyer of 10000 April 20 puts at 57.5 cents. A Nov 19 - 20 put spread was bought 5000X at 32.5 cents. 147K puts and 76K calls traded on the volatility index so far. So, while the index is on a five-day winning streak, some players in the options market seem to believe that the VIX will stay tame in the weeks/months ahead.

Unusual Volume Movers

Bullish flow detected in Foster Wheeler (FWLT), with 6980 calls trading, or 4x the recent average daily call volume in the name.

Bullish flow detected in Istar Financial (SFI), with 5319 calls trading, or 4x the recent average daily call volume in the name.

Bullish flow detected in American Axle and Manufacturing Holdings (NYSE:AXL), with 5343 calls trading, or 5x the recent average daily call volume in the name.

Increasing volume also being seen in Halliburton (NYSE:HAL), Sprint Nextel (NYSE:S), and Vivus Pharmaceuticals (NASDAQ:VVUS).