Friday Options Recap

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 |  Includes: AAPL, BAC, BP, C, CAH, CAT, CSCO, EEM, F, GE, GILD, GM, IWM, MIPS, MNKD, PXD, SPRD, SPY, VXX, XCO, ZNGA
by: Frederic Ruffy

Sentiment

Stock market averages are holding gains on strong jobs data Friday. The headline number showed the US economy adding 243,000 new jobs in January, which was significantly better than the 155,000 that was expected. The rate of unemployed, which was expected to hold steady at 8.5 percent, dipped to 8.3 percent. The naysayers point out that the headline numbers don’t factor in the large numbers of people that have simply left the workforce. Still, stock market averages rallied at the open and a stronger-than-expected reading from the ISM Services Index helped fuel the rally though midday. From there, rangebound action resumed. The Dow Jones Industrial Average is up 150 points and 15 points off its best levels. The NASDAQ gained 45. CBOE Volatility Index (.VIX) is off .71 to 17.27.

Bullish Flow

Overall market option volume is on pace for an impressive 23 million contracts today, a YTD (non-dividend) record as the broad market continues to climb and implied volatilities get crushed, with VIX levels below 17 for most of the morning. Sectors seeing heavier than normal activity include Consumer Goods (GM and F), Financials (BAC and C), Industrials (GE and CAT), IT (AAPL, CSCO) and Healthcare (MKND, GILD). Overall ETF option volume is 80% above normal, with the massive EEM fly boosting the volume as well as flow well above normal in SPY, IWM, and VXX.

Pioneer Natural Resources (NYSE:PXD) is up $2.98 to $105.64 and has now rallied 8.4 percent this week. One player in the options market seems to be anticipating additional gains in the Irving, TX oil and gas company and sold 5,000 Feb 95 puts on the stock to buy 2,500 Feb 105 – 115 call spreads, paying $1.55 for the package. The position looks opening and tied to 168K shares at $104.68. Earnings due out Feb 6 and the company presents at a Credit Suisse conference on Feb 7.

Bearish Flow

MIPS Technologies (NASDAQ:MIPS) loses 10 cents to $6.41 and options volume on the Santa Clara, CA chipmaker is running 8X the daily average. 6840 puts and 630 calls traded in the name so far. The flow is concentrated in April 4 puts, which are 37.5 percent out-of-the-money. 5,825 traded, with almost three-quarters of the volume trading at the 15-cent asking price. Open interest is 1,476 and some investors might be buying the contract on the view shares will give up recent gains. The stock closed 2011 trading for $4.46 and is up 43.7 percent year-to-date. A 52-week low of $3.93 was recorded on 12/19. Earnings were announced on Jan 25.

Implied Volatility Mover

CBOE Volatility Index (.VIX) fell to multi-month lows of 16.1 Friday morning and was recently down .77 points to 17.10. Trading in the VIX pit is very busy today and included some sizable blocks. One noteworthy trade is a Feb 26 - Mar 35 call spread, apparently bought for 29 cents, 40000X, and might close a position opened a couple of weeks ago when the same diagonal spread was sold for 7.5 cents, 40000X (see 1/24 color). Separately, an investor bought 60,000 April 20 - May 26 strangles on VIX for $4.45 and seems to have opened a position in anticipation of increased volatility in the volatility index before mid-May. A third noteworthy trade in the index today is an April 28 - 35 (1X2) call ratio spread for 20 cents, 15000X. April 28 calls were sold to buy twice as many April 35 puts -- possibly rolling up in strike prices, as open interest in the April 28s is over 67K. Total volume in VIX is 390,000 calls and 177,000 puts.

Unusual Volume Movers

Bullish flow detected in Spreadtrum Communications (NASDAQ:SPRD), with 3766 calls trading, or 2x the recent average daily call volume in the name.

Bearish activity detected in Cardinal Health (NYSE:CAH), with 2218 puts trading, or 5x the recent average daily put volume in the name.

Bearish activity detected in Exco Resources (NYSE:XCO), with 5339 puts trading, or 3x the recent average daily put volume in the name.

Meanwhile, relatively high options volume is being seen in iShares Emerging Markets Fund (NYSEARCA:EEM), BP, and Zynga (NASDAQ:ZNGA)