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Sentiment

Stock market averages are higher with help from economic and earnings news Friday. Google (GOOG) shares are up 5.6 percent to $590 after the Internet search giant reported earnings that topped Street expectations late-Thursday. The early economic news Friday included a better-than-expected reading on retail sales. Total sales rose 1.1 percent last month and .5 percent more than expected. Meanwhile, the euro is up .7 percent and set to cap a strong week with a .7 percent gain Friday. European equity markets also posted gains today and anxiety levels seem to be easing ahead of the flood of earnings reports due out over the next few weeks. CBOE Volatility Index (.VIX) is down 1.84 to 28.86. The Dow Jones Industrial Average has added 135 points and the tech-heavy NASDAQ is up almost 40. Overall options volume is running about the typical pace, with 8 million calls and 6.9 million puts traded so far.

Bullish Flow

Akamai (AKAM) options remain actively traded as takeover speculation continues in the name. The stock rose in after hours Wednesday after the Business Insider suggested that people in the online ad industry believe that Google (GOOG) might bid for AKAM. Bloomberg shot down the idea in a story published yesterday. AKAM finished up 4.8 percent Thursday, but off 2.5 percent from session highs and is down 20 cents to $24.49 today. Nevertheless, options on the stock remain actively traded. 10,000 calls and 1,900 puts so far. Oct 27 and 28 calls are the most actives, with 2,290 and 2,040 traded and volume exceeding open interest in both contracts. Some investors might be taking positions on hopes for further developments on the M&A front in the week ahead. Implied volatility, which rose about 6 percent in the past few days, is steady and at the highs of the week of 73. The stock saw bullish trading prior to the GOOG chatter (see 10/11 color – premium) and last week when shares were 25 percent below current levels (see 10/4 color – premium). The company is slated to report earnings on October 26.

While Apple (AAPL)options consistently rank fist among single stocks for total daily volume, it’s not considered a very institutional product, with small order sizes and some 35% of the daily half million contracts trading in short-term weekly options. But today’s flow shows one large player at work, as a six way printed the NYSE-Arca totaling 48,000 contracts. The options strategist bought 6000 Jan 350 puts and sold 6000 Jan 390 calls, against a buy of 12000 Jan 440 calls. Then in the December term they Sold 6000 360puts and bought 6000 Dec 420 calls against a sale of 12000 Dec 460 calls. The Jan flow looks closing, against a trade put on in July when AAPL was at 388. The Dec will open a new bullish trade, effectively long the 420 strike and short 360 puts, with cost financed by the sale of the extra 460 calls. That is, Dec 330 puts were sold to buy a Dec 420 – 460 (1X2) call ratio spread. The position offers its best payoff if shares rally to $460 through the Dec expiration, which represents a 9.7 percent rally over the next 63 days. AAPL is up 2.7 percent to $419.35 Friday.

Bearish Flow

Targacept (TRGT) is trading down 24 cents to $17.10 and options volume on the Wiston-Salem, NC biotech is running higher than usual after one strategist bought a Nov 10 – 12.5 put spread on the stock for $1.10, 1936X. The position looks opening and comes after a 14.5 percent rally in the stock since Oct 4. The company said yesterday that it will present at a BioCentury Newsmakers Conference on Oct 21. Shares saw heightened volatility around the time earnings were last reported on Aug 4. The stock gave up 25.8 percent from 7/29 to 8/8.

Implied Volatility Mover

Schwab (SCHW) loses 18 cents to $12.47 and morning trades on the discount broker include a multi-exchange sweep of 5447 Nov $11 puts for 25 cents. Data indicate an opening buyer for a customer account. 6,320 now traded. Oct 13 calls and Nov 12 puts on Chuck are seeing interest as well. Implied volatility is up 4.5 percent to 44.5 and the overall flow seems somewhat bearish heading into earnings (Monday morning).

Unusual Volume Movers

Bullish flow detected in HCA (HCA), with 5442 calls trading, or 6x the recent avg daily call volume in the name.

Bullish flow detected in OCZ Technology Group (OCZ), with 2385 calls trading, or 4x the recent avg daily call volume in the name.

Bullish flow detected in AMR, with 39373 calls trading, or 2x the recent avg daily call volume in the name.

Bearish activity detected in Radian Group (RDN), with 3353 puts trading, or 7x the recent avg daily put volume in the name.

Unusual options volume is also being seen in iShares Japan Fund (EWJ), iShares Taiwain Fund (EWT), and iShares Hong Kong ETF (EWH).

Source: Friday Options Recap