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Sentiment

Stock market averages fell on concerns about the Eurozone Thursday. France’s CAC 40 Index lost 2.5 percent and helped pace a decline across European equity markets after a highly anticipated EU summit failed to ease anxiety levels about the deepening debt crisis. While officials pledged to provide loans to troubled European banks, they didn’t offer any plans to buy back bonds – which some market watchers had been anticipating ahead of the summit. Collective disappointment set in and stock market averages slumped on both sides of the Atlantic. The domestic economic news wasn’t all bad after the Labor Department said Weekly Jobless Claims fell to 385K from 404K and 10,000 more than had been expected. Still, the Dow Jones Industrial Average is trading down 160 points heading into the final hour. The NASDAQ lost 42. CBOE Volatility Index (.VIX) is up 2 points to 30.67. Trading in the options market remains light. 5.8 million calls and 5.5 million puts traded across the exchanges so far.

Bullish Flow

Yahoo (YHOO) adds 12 cents to $15.73 and a bullish three-way spread is initiated on the Internet company after one strategist sold April 14 puts to buy the April 16 – 20 call spread, paying 30 cents for the package, 25000X. It’s possibly a new position and a bet that shares will trade north of $16.30 (~3.6%) through the April expiration (134 days). YHOO is seeing relative strength today after Reuters reported that Alibaba is seeking $4 billion in financing to buyback the 40 percent stake in the company owned by Yahoo.

Bearish Flow

BofA (BAC) loses 12 cents to $5.76 and the top options trades in the bank today: BAC Jan 4 – 5 put spread bought for 19 cents, 20000X. While open interest is sufficient to cover, this might be an opening position on concerns about additional losses for BAC shares through the Jan 2012 expiration (43 days). The position delta is -.16 and the downside breakeven at expiration is at $4.81 (~16.5%) and 4.4 percent below the 52-week low of $5.03 set intraday on 11/29. The best payoff, of 81 cents (excluding transaction costs), happens if shares fall to $4 (~30.6%) or less during that time.

Implied volatility Mover

iStar Financial (SFI) loses 33 cents to $5.85 and options volume on the stock is running 9X the daily average after 6,500 puts and only 35 calls traded on the NY based REIT so far today. The top trade is a 3440-lot of Apr 5 puts for 70 cents per contract when the market was 55 to 75 cents. It appears to be an opening buyer. 4,000 now traded against no contracts of existing open interest. Today’s flow in SFI also includes a multi-exchange sweep of 1,030 Apr 4 puts at the 40-cent asking price. 1560 now traded. Apr 3 puts are seeing interest as well and implied volatility in SFI options is up 14 percent to 64.5, as some investors appear to be bracing for a decline in the share price between now and mid-April. Shares jumped 16.7 percent on no news and increasing call volume Monday, but the stock is down 41.6 percent since February. The company has been operating at a hefty loss – 71 cents per share in the most recent quarter.

Source: Thursday Options Recap