Friday Options Recap

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Includes: ANF, CSC, CYH, MSFT, NFLX, ORCL, SWN, TLM, VRX, WSM
by: Frederic Ruffy

Sentiment

Stock market averages are mixed for a third day, as better-than-expected jobs data failed to excite investors Friday. The report showed the economy adding 200,000 jobs last month, which was 50K more than expected. The unemployment rate fell to a better-than-expected 8.5 percent. However, troubles on the other side of the Atlantic seem to be keeping a lid on any rally attempts. Yields on Spanish debt are still climbing to frightening levels and the euro fell to 16-month lows against the buck. Yet, market action is mixed on Wall Street, with the Dow now down 55 points and the tech-heavy NASDAQ up 6.3 points. CBOE Volatility Index (.VIX) is down .81 to 20.61 and probing December multi-month lows. Trading in the options market is active, with 6.3 million calls and 5.3 million puts traded across the exchanges so far.

Bullish Flow

Bullish trading in Valeant Pharmaceuticals (NYSE:VRX) after one investor sells Jan13 $30 puts on the stock to buy Jan13 55 - 75 call spreads, paying $2.10, 4000X to open. Shares are off 27 cents to $46.90 and the three-way has traded 10000X. VRX has been volatile today after the company issued an in-line fourth quarter outlook, falling to $45.66 in morning trading. The stock is now off 2.7 percent off those lows and clinging to a 200-day moving average after a three-month 34 percent advance in the share price.

Southwest Energy (NYSE:SWN) loses 47 cents to $33.18 and options volume on the Houston, TX oil and gas company is running 2.5X the daily average, being driven by a time spread. One strategist sold 6,200 Jan 34 calls on the stock at 75 cents to buy 5,000 Feb 34 calls for $1.63. He or she might expect the stock to hold below $34 (~2.4%) through the January expiration (14 days) and then rally though the Feb expiry (42 days). The company is due to present at a Goldman Sachs conference on 1/10 and earnings are expected around February 23, possibly outside of the Feb 18, 2012 expiration.

Bearish Flow

Computer Sciences (NYSE:CSC) trades down 47 cents to $23.84 and the top options trade on the stock today is a 3625-lot of Jun 20 puts bought for $2 on ISE to open. 5,100 traded. Jan 22.5, Feb 20, Mar 22.5, Mar 25, and Jun 22.5 puts on CSC are seeing interest as well. Meanwhile, implied volatility in the options the stock is up 14.5 percent to 69 after approximately 15,000 puts and 1,600 calls traded in the name. Bearish trading in CSC comes after a disappointing two months for shareholders. The stock is down 27.7 percent since earnings were reported on 11/9.

Implied Volatility Mover

Williams Sonoma (NYSE:WSM) adds 34 cents to $38.27 and early options flow on the retailer includes several multi-exchange sweeps of Jan 38 calls at the offer. The largest is 995 contracts for $1.60 when the market was $1.50 to $1.60. 2,678 now traded against 1,477 in open interest. Meanwhile, implied vols in WSM options moved up 7 percent to 42. Looks like speculative call buying, but no headlines on the ticker.

Unusual Volume Movers

Bearish activity detected in Abercrombie and Fitch (NYSE:ANF), with 5435 puts trading, or 2x the recent avg daily put volume in the name.

Bullish flow detected in Community Health (NYSE:CYH), with 10240 calls trading, or 35x the recent avg daily call volume in the name.

Bullish flow detected in Talisman Energy (NYSE:TLM), with 6112 calls trading, or 10x the recent avg daily call volume in the name.

Meanwhile, unusually high options volume is being seen in Microsoft (NASDAQ:MSFT), Netflix (NASDAQ:NFLX) and Oracle (NASDAQ:ORCL).