Friday Options Recap

by: Frederic Ruffy


Stock market averages are holding gains with help from GDP data Friday. The report, released before the bell, showed economic growth at an annual rate of 3.1 percent in the fourth quarter. It marked an improvement from 3.8 percent in the third and was also better than economist estimates of 3.9 percent. The rest of the day’s news was mixed. The University of Michigan reported that its index of consumer sentiment declined to 67.5 in late-March, down from 68.2 the month before and slightly worse than the 68.0 that was expected. Meanwhile, Oracle (NASDAQ:ORCL) is helping the tech-heavy Nasdaq on better-than-expected earnings, but RIMM fell more than 11 percent on disappointing guidance due to new product and spending plans. Nevertheless, the Dow Jones Industrial Average is up for a third day and has added 60 points on the session. The Nasdaq added 9. The CBOE Volatility Index (.VIX) slipped .14 to 17.86, but off session lows of 17.07. Trading is slowing a bit, with 8 million calls and 6.6 million puts traded so far.

Bullish Flow

44000 calls traded in Eastman Kodak (EK) through midday. Typical volume in the first hour is less than 900 contracts. Shares are up 33 cents to $3.46, as investors brace for an ITC review of patent case involving Eastman Kodak vs. Apple and RIM. If successful, Kodak could receive more than $1 billion in royalty payments, reports Bloomberg, citing Chief Executive Antonio Perez. The decision is expected this afternoon. There seems to be some optimism building, EK is up and volume in the April 4 calls is approaching 11000 (64 percent Ask). April 3.5, July 4, and July 5 calls are seeing brisk trading as well.

Yahoo (NASDAQ:YHOO) adds 14 cents to $16.97 and the Apr - July 18 call spread is apparently bought at 73 cents, 23000X this morning on the ISE. It might be a roll (closing April and opening July) or a closing a spread altogether. Open interest in the April 18 calls is 125,271 contracts and the biggest position in Yahoo today. In any case, today's spread trader might be selling the position on the view that it's becoming less likely that the stock will move beyond $18 through the April expiration. The probability of that happening is 27 percent. The contract is 6.1 percent out-of-the-money with three weeks of life remaining. Market is 23 to 25 cents.

Bearish Flow

The biggest options trade Friday morning is in the SPYders (NYSEARCA:SPY) after an investor sold 65000 April 125 puts at 51 cents each. They also sold 20000 May 125 puts at $1.61. Shares are up 83 cents to $131.73 and the same investor bought 36000 July 125 puts at $3.31. July puts look opening and the action is possibly rolling of a hedge, or closing out the April and May 125s to open a smaller position in July 125s.

Implied Volatility Mover

Bristol Myers (NYSE:BMY) is up $1.13 to $27.56 and options are heavily traded today after the FDA approved ipilimumab for melanoma. 82,000 calls and 25,000 puts traded so far. The top trade surfaced at noon when 1294 April 27 puts traded on the 94-cent bid and might be an opening put writer on the news. The next biggest trade is a 955-block of April 27 calls on the 40-cent bid, which might be a liquidating trade. April 27 calls have now traded more than 20,000 contracts vs. 25,875 in open interest. April 26 and 28 call options are the next most actives. Implied volatility has eased 5 percent to 20.5.

Unusual Volume Movers

Bearish activity detected in Fuqi International (OTCPK:FUQI), with 2968 puts trading, or 5x the recent average daily put volume in the name.

Bullish flow detected in RadioShack (NYSE:RSH), with 20965 calls trading, or 5x the recent average daily call volume in the name.

Bearish activity detected in Yamana Gold (NYSE:AUY), with 20519 puts trading, or 7x the recent average daily put volume in the name.

Increasing volume is also being seen in Oracle (ORCL), Research In Motion (RIMM), and Best Buy (NYSE:BBY).