Friday Options Recap

by: Frederic Ruffy


Overall market action has been orderly on the Quadruple Witch options expiration Friday. With no economic news or earnings of importance to guide the action, some of the early focus was on the currency market after G-7 officials agreed to intervene and slow the rally in the Japanese yen. Meanwhile, Libyan forces announced a cease-fire today and the news seems to have helped ease some of the recent worry about escalating unrest in Middle East/North Africa. JP Morgan (NYSE:JPM) is up 2.7percent and the best gainer in the Dow after announcing plans for a dividend increase. With an hour left to trade, the Dow is up 63 points and the tech-heavy Nasdaq added 8. The CBOE Volatility Index (.VIX) is down 1.66 to 24.71, but up 23 percent from a week ago. Options action has been picking up throughout the week due to the increasing levels of market volatility and the options expiration. There have been 9.2 million calls and 8.3 million puts traded so far today.

Bullish Flow

Cisco (NASDAQ:CSCO) is trading up 29 cents to $17.29 after announcing plans for a 6-cent dividend and recent options trades include an April 16 – 18 call spread, apparently bought at $1.24, 5000X on CBOE. 37000 calls and 9,900 puts traded in Cisco during the first 30 minutes. Implied volatility is down 2.5 percent to 26.5, as shares try to make back some of the 22.9 percent loss suffered since earnings were reported on 2/9.

Proshares UltraShort Yen (NYSEARCA:YCS) options are busy for a second day. Open interest in the Mar 15s increased by 7,549 following yesterday's action. The top two trades were 2,600-contract blocks at 15 and 20 cents. The market was 10 to 20 cents at the time. Shares surged 71 cents to $15.41 Friday on news G-7 officials agreed to intervene and slow the recent rally in the Japanese currency. 7,230 March 15 calls have traded so far today. The top trade is a 2000-contract block of 35 cents. The March 15 call has also traded in two blocks (1000 and 1800) at 40 and 45 cents. The market is now 35 to 45 cents. It looks like yesterday's call positions, opened at 15 and 20 cents, were being liquidated at a profit today ahead of the expiration. April 15 calls have seen two days of active trading as well.

Bearish Flow

Prologis (NYSE:PLD), a Denver-based industrial real estate company, is up 32 cents to $15.10 and it looks like an investor trades the March 14 – 16 risk-reversal, 14000X and the Mar 13 – 15 risk-reversal, 14000X, for the July 12 – 15 bearish risk-reversal, 28,600X. It probably rolls collars opened in mid and late-January, which were opened (tied to stock) on news the company was in merger talks with AMB. So, although the options combination is bearish (buying puts and selling calls), the overall delta of the position is positive (bullish) because the position was a “collar” against a stock position.

Implied Volatility Mover

Lorillard (NYSE:LO) is up $6.91 to $85.69 and implied volatility is easing after an FDA panel suggested removing menthol cigarettes from the market for public health reasons, but even if the FDA would follow the recommendation, it could take years. Menthol sales account for 90 percent of Lorillard’s revenues. While shares are up, options action remains defensive. 28000 calls and 51000 puts traded. The top trade appears to be a Mar 75 – April 65 (1×2) put ratio spread bought at 3 cents — a roll of deep OTM puts from one month to the next. March 70, March 85, April 75 and April 80 puts are busy. Expiring March 85 and 90s are the most active call options. Implied volatility is down 21 percent to 34.5, now that this event risk has passed.

Unusual Volume Movers

Bearish activity detected in National Bank of Greece (NBG), with 2561 puts trading, or 3x the recent average daily put volume in the name.

Bullish flow detected in CenterPoint Energy (NYSE:CNP), with 3339 calls trading, or 111x the recent average daily call volume in the name.

Bullish flow detected in Assured Guaranty (NYSE:AGO), with 7158 calls trading, or 2x the recent average daily call volume in the name.

Increasing volume is also being seen in Pfizer (NYSE:PFE), Massey Energy (NYSE:MEE), and JP Morgan (JPM).