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Sentiment

Stock market averages are under water in a seesaw trading session late on options expiration Friday. With no economic data and few earnings to guide the action, the underlying tone of trading remains cautious after European equity markets suffered another round of losses. Germany’s DAX, which plummeted 5.8 percent Thursday, lost another 2 percent today. Markets across Spain, the UK, and France also closed with losses. After an initial round of selling on Wall Street, the Dow Jones Industrial Average was able to forge modest gains through mid-morning, but the early strength was short-lived. Trading was mixed into midday and the Dow has been grinding lower in the final hour. The decline has been orderly, however, and industrials are now down 117 points. The tech-heavy Nasdaq lost 28. CBOE Volatility Index (.VIX) added 1.14 to 43.81. Trading in the options market is active due to the expiration and reflects the prevailing sentiment, with 9.9 million calls and 12.3 million puts traded so far.

Bullish Flow

Silicon Graphics (NASDAQ:SGI) surges 30 percent to $15.49 on fourth quarter earnings results and upside guidance. Options volume is 8X the average daily, with 8,075 contracts traded in the name so far 5,270 contracts, or nearly two-thirds of the volume, is in the expiring August contracts. Aug 11 and 13 calls are the most actives and are likely seeing some closing activity, as both contracts are in-the-money after today’s big move in SGI. The top trade is a 500-contract lot of Dec 16 calls at the $2.45 asking price, which appears to be an opening buyer. 1,000 now traded. Meanwhile, implied volatility on the Fremont, CA computer systems company is down 7.5 percent, but still elevated at 89 percent.

MGM (NYSE:MGM) loses 47 cents to $9.53 after data showed 10 percent owner Tracinda selling a $214.9 milliion share stake on 8/17. In options action, a noteworthy trade in the casino-operator today is a 22500-contract block of Jan13 7.5 puts at $1.80 when the market was $1.80 to $1.90. The apparent put write might be a closing trade. If so, it exits a position accumulated over a period time because today's volume is 25,300 and a new high for the Jan13 7.5 put on MGM. The previous record was 7135 contracts on 2/1. Today's put write comes after a share price decline of almost 40 percent since June 25.

Bearish Flow

SPDR Financials (NYSEARCA:XLF) has been grinding lower in afternoon trading and is now down 22 cents to $12.16, two cents off morning lows. Afternoon trades in the ETF include a 49000 contract block of Sep 11 puts at the 39-cent asking price. Another 40,000 Oct 10 puts, which saw heavy trading yesterday, traded at the 45-cent asking price. Total volume is 115k calls and 305K puts, which is not high volume for the financial fund these days — but still reflects the bearish underlying tone that has infected the financial sector in recent weeks. Implied volatility in XLF options is up 6,5 percent to 53, but still well below the highs of more than 70 seen after the 8/8 market debacle when XLF hit a 52-week low of $12.16 — which it is now testing heading into the final hour.

Implied Volatility Mover

Clearwire (CLWR) shares are rallying and options volume is picking up in the Kirkland, WA wireless communication company after Bloomberg published an article suggesting that Sprint’s discussion with cable companies could lead to an acquisition of Clearwire. Shares are up 37.5 percent to $3.18 and 11,000 calls/1,790 puts traded in CLWR. Sep 4 calls, which are 25.8 percent OTM and expire in four weeks, are the most actives. 3100 traded (89 percent Ask). Aug 2, Aug 3, Sep 3, and Sep 5 calls are seeing interest as well. Implied volatility in CLWR is up 5 percent and elevated at 160.

Unusual Volume Movers

Bullish flow detected in Compania De Minas Buenaventura (NYSE:BVN), with 6965 calls trading, or 9x the recent average daily call volume in the name.

Bullish flow detected in J.C. Penney Company (NYSE:JCP), with 21178 calls trading, or 4x the recent average daily call volume in the name.

Bearish activity detected in Level 3 Communications (NYSE:LVLT), with 7138 puts trading, or 10x the recent average daily put volume in the name.

Meanwhile, high options volume is being seen in Halliburton (NYSE:HAL), Temple Inland (NYSE:TIN), and Salesforce.com (NYSE:CRM).

Source: Friday Options Recap