Friday Options Recap

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 |  Includes: AMTD, CHK, DO, MIPS, MSFT, NI, SIRI, VALE, WMB
by: Frederic Ruffy

Sentiment

Worries about S&P credit downgrades of Eurozone nations along with post-earnings volatility in JPMorgan (NYSE:JPM) sank the stock market averages Friday. Reuters reported Friday morning that S&P was set to lower the ratings of a number of European countries Friday and, while stock market average finished mixed across Europe, the euro faced another round of selling. The currency is down 1.1 percent to 1.2675 against the buck. France later confirmed that its rating had been cut. Meanwhile, JPMorgan is the Dow’s biggest loser, falling 3 percent on the heels of its earnings release. Some pre-earnings jitters might be setting in. Next week is a busy earnings week for the financials, with Citi (NYSE:C), TD Ameritrade (NASDAQ:AMTD) and Wells Fargo (NYSE:WFC) kicking things off first thing Tuesday morning. On the economic front, the news was mixed. The University of Michigan reported that its index of consumer sentiment is up to 74 in early-2012 and significantly better than the 71.2 that was expected. However, the Trade Gap grew to $47.8 billion in November and almost $4 billion more than expected. The primary concern, however, is on Europe and the lack of progress being made to stem the debt crisis. Greece is now warning of further risks after talks to slash the deficit with creditor banks broke down Friday. The Dow Jones Industrial Average has lost 60 points ahead of the three-day weekend. The tech-heavy Nasdaq gave up 14. With forty-five minutes left to trade, CBOE Volatility Index (.VIX) is up 1.11 points to 21.58. Trading in the options market is active and likely to remain busy heading into a flood of earnings reports and the Jan expiration next week. 6.8 million calls and 6.2 million puts traded across the exchanges so far.

Bullish Flow

Sirius XM Radio (NASDAQ:SIRI) sees increasing options activity ahead of next week’s expiration. Shares are up a nickel to $2.16 and outperforming today on heavy volume of 48 million shares. No headlines on the ticker and January 2 calls, which are now 15 cents in-the-money and expiring in 7 days, are the most actives. 22,250 traded and 61 percent traded at the ask. Some of the flow appears to be closing trades, as the total volume is only 11.2 percent of the existing open interest, which is 198,485 and the second largest position in SIRI behind the Jan 1 put. Jan 2.5. Mar 2, and Mar 2.5s are the next most actives in SIRI. 42,000 calls and 2,725 puts now traded on the stock and implied volatility is up 2.5 percent to 41.5. The company next reports earnings in mid-Feb.

Bearish Flow

Microsoft (NASDAQ:MSFT) options (normally behind AAPL and BAC for volume) led the single stock space this morning, with a large spread executed on the AMEX at 11:33ET when shares were at 27.95. Initiator bought 80,000 Jan 26 calls for 1.90 and sold 117k July 28 calls for 1.48, netting a credit of about $2.1million. Trade history shows that the Jan 26s were opened last Nov when paper sold the 26-27.5 call spread for 46 cents (traded at slight ratio) when MSFT was near 25.31. Trader appears to be taking losses but continuing a view that MSFT will not see levels much above current $28 range.

Pre-earnings action in TD Ameritrade (AMTD) today is focused on Jan 16 puts. Shares are off 59 cents to $16.07 and the top trade is a 1465-lot for 30 cents per contract on ISE. A customer bought the position to open. 2,000 were bought to open on ISE, according to data from the exchange, and total volume is 3,410 against 1,053 in open interest. Implied volatility in the options on the online broker is moving up 10 percent ahead of the report, due out Tuesday morning.

Implied Volatility Mover

CBOE Volatility Index (.VIX) jumps 1.04 points to 21.51 Friday morning on reports S&P will downgrade several Eurozone countries. According to Reuters, “A senior euro zone source said S&P would announce the downgrades of several nations later Friday, adding that Germany was not one of them.” There hasn’t been much of a reaction in the VIX pit thus far, as 18,000 calls and 20,000 puts traded in the first 30 minutes. In fact, January 21 puts, which are expiring Wednesday and have only two trading days of life (including today) remaining due to the exchange holiday Monday, are the most actives. 10,660 traded (75 percent Ask). VIX is down 8.1 percent in 2012 despite the ongoing concerns about problems in the Eurozone and, at 21.51, doesn’t seem to reflect any grave concerns about another uptick in overall levels of market volatility going forward, as domestic economic news has improved and players now await a flood of Q4 earnings reports.

Unusual Volume Movers

Bullish flow detected in Nisource (NYSE:NI), with 5305 calls trading, or 5x the recent avg daily call volume in the name.

Bullish flow detected in Diamond Offshore Drilling (NYSE:DO), with 10269 calls trading, or 11x the recent avg daily call volume in the name.

Bullish flow detected in MIPS Technologies (NASDAQ:MIPS), with 3162 calls trading, or 14x the recent avg daily call volume in the name.

Meanwhile, high options volume is being seen in Chesapeake (NYSE:CHK), Williams Companies (NYSE:WMB), and Vale (NYSE:VALE).