Friday Options Recap

by: Frederic Ruffy


Stock market averages are under water ahead of the weekend and the August 2 deadline to raise the debt ceiling. A disappointing reading on economic growth set the stage for broad market weakness Friday after GDP showed an annualized increase of 1.3 percent for the second quarter. Economists were looking for an increase of 1.7 percent. Meanwhile, the June Chicago PMI was a bit better than anticipated (58.8 vs. 58 consensus) and the UofMichigan Sentiment Index finished the month in-line with expectations (63.7). Much of the focus remains on Washington, however. Market averages saw a modest lift mid-morning after President Obama said politicians are not “miles apart” in reaching a compromise over budget plans. The rally didn’t last and market averages were back under water at midday. With 90 minutes left to trade, the Dow Jones Industrial Average is down 60 points. The tech-heavy NASDAQ is flat. CBOE Volatility Index (.VIX) is up 1.31 to 25.05 and reaching its best levels since mid-March. Trading in the options market is running at a brisk pace, with 7.4 million calls and 8 million puts traded across the exchanges so far.

Bullish Flow

Interesting flow in the weekly options that expire next Friday and therfore include the potential US default event. On the stock side call buyers appear to dominate, with BAC 10 and 11 strike calls trading actively and Apple (NASDAQ:AAPL) and Research in Motion (RIMM) upside calls busy in offer-side flow with increasing IV. On the ETF side the volume is in the puts, with SPY 128 strike puts for 8/5 expiration leading the list and an early buyer paying 1.95 for nearly 8000 contracts on the CBOE.

American Axle (NYSE:AXL) adds 51 cents to $11.05 after the Detroit-based auto parts maker reported quarterly earnings of 65 cents per share, which was 21 cents better-than-expected. A noteworthy options trade in AXL this morning is a block of 6500 Jan13 7.5 puts sold at $1 per contract. The position looks opening and probably a bet that shares will hold above $7.5 through Jan 2013.

Bearish Flow

Two big prints in EMC today, which is trading down 56 cents to $26.03. An 18,903-contract block of Jan 17.5 puts traded at 19 cents. Separately, a 16,015 Jan 20 puts traded at 36 cents. Both traded on ISE about an hour apart. Sentiment data from the exchange hints at a closing purchase (firm) in the 17.5s and opening in the 20s (crossed firm-to-firm). 41,000 puts and 7,400 calls now traded in the data storage device maker.

Implied Volatility Mover

Hatteras Financial (NYSE:HTS) is trading down $1.12 to $26.55, as the mortgage Real Estate Investment Trusts get slammed on US debt default fears Friday. Mortgage REITs invest some of their assets in mortgage securities guaranteed by the government agencies. Annaly Capital (NYSE:NLY) is the largest mortgage REIT. Meanwhile, HTS plummeted to a new 52-week low of $23.80 early and is now 11.6 percent off its worse levels. However, defensive trading continues and implied volatility in HTS options is sharply higher. 8,170 puts traded and 3,310 calls traded in the name so far. Aug 20, 25 and 26 puts are the most actives and implied vols have rallied more than 100 percent to 31.5.

Unusual Volume Movers

Bullish flow detected in Forest Oil (NYSE:FST), with 5655 calls trading, or 2x the recent average daily call volume in the name.
Bearish activity detected in PACCAR (NASDAQ:PCAR), with 5035 puts trading, or 4x the recent average daily put volume in the name.
Bearish activity detected in TiVo Inc (NASDAQ:TIVO) with 12356 puts trading, or 6x the recent average daily put volume in the name.
Meanwhile, high options volume is being seen in Annaly Capital, Chesapeake (NYSE:CHK), and United Continental (NYSE:UAL).