Friday Options Recap

by: Frederic Ruffy


Stock market averages are deep under water on worries about problems in the Eurozone. Spain’s IBEX, Germany’s DAX, and France’s CAC 40 Index all lost more than 3 percent Friday on worries Greece won’t escape default. An unnamed Greek official was apparently out denying the speculation today, but the soothing words failed to reassure investors.

Stocks tumbled across Europe and, after breaching a support area near 1.40 midweek, the euro is down another 1.5 percent to 1.366 against the buck. The yen is at multi-year highs on the European currency. News that ECB economist Juergen Stark has resigned added to the anxiety.

Meanwhile, the day’s domestic economic news included a report on Wholesale Inventories, which was up .8 percent and in-line with expectations. The data had no market impact. The focus is on Europe. Players are selling shares for fear of further fallout over the weekend. The Dow Jones Industrial Average is now down 344 points and probing session lows. The NASDAQ has lost 71.6. CBOE Volatility Index (.VIX) gained 6.12 to 40.44 and seized the 40 level for the first time since August 26. Trading in the options market reflects the bearish underlying tone, with 7.4 million calls and 10.2 million puts traded so far.

Bullish Flow

Barrick Gold (NYSE:ABX) loses 17 cents to $55.01 and a Jan 48 – Jan13 52.5 put spread is sold on the gold miner at $5.97, 7500X. It’s possibly a roll, and closing out a position in the Jan 48s while selling-to-open a new position in Jan13 $52 puts. If so, it might roll a position from Jul 22 when the Oct 45 – Jan 48 put spread was sold at $2.15, 10000X. At that time, Barrick Gold shares traded around $50.19 and the Jan 48 puts traded at $3.10. They’re being bought at $1.98 today and a new position in the 2013 52.5 puts opened at $7.95. So this appears to be part of an ongoing short put strategy, in which the strategist is rolling positions out and up in strike prices as shares of the gold miner move higher. ABX is up 21.4 percent since June.

Bearish Flow

KB Homes (NYSE:KBH) is off 16 cents to $5.91 and 20000 Oct 8 calls are sold on the homebuider at 13 cents per contract. Open interest is 20,310 and so this might be a closing trade. If so, it exits a position accumulated from Aug 29 to Aug 31 when open interest increased by 19,831 to 20,433 contracts over those three days. At that time, the largest trade was a 3,652-contract block at 21 cents. Shares are down 13.5 percent since Aug 30 and today’s call write seems to reflect diminishing expectations for a move beyond $8 (~35.4%) in KBH through the Oct expiration (42 days).

Implied Volatility Mover

Yahoo (NASDAQ:YHOO) shares made a run to $14.56 in morning trading, but the gains were lost and shares are now down 23 cents to $14.21. Meanwhile, options on Yahoo have seen brisk trading, with 42,000 calls and 16,000 puts traded on the Internet giant so far. The top trades of the day are part of a ratio spread, in which the strategist sold 2,700 Sep 14 calls at 74 cents and bought 5,400 Sep 16 calls at 20 cents -- possibly closing out a bullish 1X2 ahead of next week's expiration. The next biggest trade in Yahoo options is an Apr 16 - 20 call spread apparently bought at $1, 500X. Most of the other action has been in smaller lots. Sep 13, Sep 15 and Oct 15 calls are seeing interest as well. Oct 13 and expiring Weekly 14s are the most active puts. YHOO moved higher in morning trading on talk the company had hired a strategic advisor. The chatter comes just two days after the company ousted its CEO Carol Bartz. However, the speculation might be twist on a Dow Jones report that Yahoo has hired Director Kenny to form a Strategy and Transactions Committee. WSJ Deal Blog has more details in a piece titled "Yahoo Begins Lining Up Its Bankers", which was published earlier today. Meanwhile, implied volatility in YHOO has eased 2 percent to 63, but recorded a new 52-week high of 64 Thursday. The volatility priced in the options indicates that investors in the options market are bracing for the potential for wider price swings in YHOO shares in the weeks ahead.

Unusual Volume Movers

Bullish flow detected in Sony (NYSE:SNE), with 4346 calls trading, or 2x the recent average daily call volume in the name.

Bearish activity detected in Netease (NETS), with 4279 puts trading, or 4x the recent average daily put volume in the name.

Bearish activity detected in Kodiak Oil and Gas (NYSE:KOG), with 3806 puts trading, or 8x the recent average daily put volume in the name.

Meanwhile, high options volume is being seen in PowerShares Bullish Dollar Fund (NYSEARCA:UUP), CurrencyShares Euro ETF (NYSEARCA:FXE), and Barclay’s (NYSE:BCS)