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Sentiment

Stock market averages are deep in the red on the final day of trading for the third quarter 2011. The domestic economic news held some good news after the Chicago PMI rose to 60.4 in September, up from 56.5 in August and much better than the 54.0 that was expected. At the same time, UofMichigan Consumer Sentiment index improved to 59.4, from 57.8 in mid-September and better than the 57.5 that was expected. However, the stage was set for morning weakness on Wall Street after disagreement among EU officials about plans to solve the debt crisis weighed on Eurozone equity markets. Germany’s DAX paced the decline with a 2.5 percent loss. The euro gave up 1.3 percent on the buck and economic uncertainty has heightened risk perceptions heading into the historically volatile month of October. A disappointing reading on personal incomes, which fell .1 percent in August and .2 percent more than expected, also weighed on morning trading. The report also showed a .2 percent increase in spending, which was in-line with expectations. The Dow Jones Industrial Average opened lower despite mixed data and has failed to stage any meaningful rally attempts. Instead, the Dow is down 154 points and testing 11,000. The industrials lost 11.4 percent for the quarter. With an hour left to trade, CBOE Volatility Index (.VIX) is up 2.51 to 41.35. VIX finished the month of June at 16.52. Meanwhile, options action is defensive, but volume is light. 6 million calls and 6.7 million puts traded across the US exchanges so far.

Bullish Flow

Two noteworthy prints in BofA (NYSE:BAC) Friday morning – both are bullish plays on the battered bank. Shares are down 14 cents to $6.21 and set to finish the third quarter not far from a 52-week closing low of $6.06 set on Sep 22. The top options trade on the bank today is a 19,000-block of Jan13 7.5 calls, bought at $1.52 per contract. The investor is likely buying calls (to lock in the right to buy the stock at $7.50 through Jan 2013) rather than take a position in shares. 20,122 Jan13 7.5 calls traded on BAC early Friday against 126,345 in open interest. Separately, a Nov 4 – 7.5 risk-reversal trades at 12 cents, 9000X on ISE. Looks like a bullish r/r was initiated and ISEE data indicate an opening trade.

Bearish Flow

Eastman Kodak (EK), the 131-year old camera company and once a member of the Dow Jones Industrial Average is reeling Friday afternoon after Bloomberg reported the company is exploring options -- including bankruptcy. EK was recently down $1.12 to just 57 cents per share. Oct 1 puts are the most actives on the stock. 4,260 traded. November 1 and October .5 puts are seeing interest as well. 16,000 puts and 8,820 calls now traded in Kodak. EK has been under pressure throughout the week and was the subject of bearish options order Flow Monday when the stock was at $1.81 per share (see Monday’s Options Recap).

Implied Volatility Mover

Harbin Electric (NASDAQ:HRBN) is up $1.78 to $20.98 and implied volatility in the options on the stock is falling 34 percent to 96 after the company filed a10K and started mailing proxy metarials for a special meeting for shareholders to vote on the $24 per share cash LBO. 20,000 calls and 26,000 puts traded on the Chinese electrical equipment company so far. The top trade is a 9000-block of Oct 18 puts at $1.40 on ISE and was sold-to-open by a customer, according to ISEE data. 10,485 now traded, probably on the view that the stock will hold above $18 (~14.5%) through the October expiration (21 days). Shares hit a low of $17.63 in volatile trading Wednesday on a negative blog post (see 9/28 color), but have rebounded for a 19 percent gain since that time.

Unusual Volume Movers

Bearish activity detected in Credit Suisse (NYSE:CS), with 2275 puts trading, or 2x the recent avg daily put volume in the name.

Bearish activity detected in Hertz Global (NYSE:HTZ), with 6302 puts trading, or 6x the recent avg daily put volume in the name.

Bullish flow detected in Yandex (NASDAQ:YNDX), with 3118 calls trading, or 2x the recent avg daily call volume in the name.

High options volume is being seen in Cree (NASDAQ:CREE), Walgreen (WAG), and iShares China ETF (NYSEARCA:FXI).

Source: Friday Options Recap