Friday Options Recap

by: Frederic Ruffy


Losses across the Eurozone helped set the table for weakness on Wall Street after finance ministers told Greece it better initiate additional budget cuts if the country wants a second bailout. The calls for stricter austerity measures come even as protests flare around Athens and a March debt default deadline looms. The euro gave back some of its recent gains on the buck and France’s CAC 40 Index paced a decline across the Eurozone with a 1.5 percent loss. The domestic economic news was equally uninspiring after data showed the U of Michigan at 72.5 in February, down from 75.0 and also below economist estimates of 74.0. A separate report showed the nation’s Trade Gap widening more than expected. Stocks move broadly lower early and have so far failed to stage any meaningful rally attempts. The S&P is in danger of suffering its first daily loss in excess of 1 percent so far in 2012. The Dow is down 125 points and the NASDAQ lost 27.5. CBOE Volatility Index (.VIX) seized 3.25 to 21.88. Options volume reflects the more cautious underlying sentiment. 9.4 million calls and 8.7 million puts traded so far.

Bullish Flow

CBOE Holdings (NASDAQ:CBOE) is up $1.46 to $27.93 and near session highs on share volume of 2.6 million, which is almost 10X the typical levels through midday, after S&P selected the stock to join the MidCap 400 Index. CBOE reported earnings yesterday morning and edged up 17 cents on the results. The company is also presenting at a Credit Suisse conference Friday. Sentiment seems decidedly bullish, as the stock is rallying and options volume is running 5.5X the daily average. 11,000 calls and 3,460 puts traded on the owner of the Chicago Board Options Exchange so far. The action has been small sizes. The top trade is a 258-lot of Feb 28 puts for 45 cents. Sep 28 calls, Mar 27 puts, Feb 28 calls, Feb 27 calls and Jun 18 calls are the most actives and implied volatility is moving up 8.5 percent to 23 on the day.

Yahoo (NASDAQ:YHOO) adds 25 cents to $16.25 and is seeing relative strength today on reports Alibaba is considering taking its Hong Kong unit private, which would give Yahoo a stake in Alibaba. The headline comes the day after news reports indicated that Alibaba might buy back its 40 percent stake in YHOO. The stock is in the midst of a two-day 2.8 percent advance and today’s share volume of 8.8 million is a lot higher than the expected volume of 5.8 million. Options on Yahoo are actively traded as well. Recent trades include a July 16 – 18 (1X2) call ratio spread for 19 cents, 3000X. Separately, a Mar 14 – 16 put spread was possibly sold on the stock at 40 cents, 6200X. A third big trade in Yahoo today looks like a July 16 straddle, which traded at $2.88, 4750X.

Bearish Flow

Active trading in the Dow Jones Industrial ETF (NYSEARCA:DIA), which is down $1.39 to $127.37 and not far from session lows late-Friday. 95,000 contracts traded on the fund, which is 3X the normal volume for the Diamonds. 36,000 calls and 59,000 puts so far. The top trade is a Mar Quarterly 127 – 128 strangle, bought for $5.90, 10000X. The hefty premium purchase appears to be a new position and was possibly initiated to hedge the risk of heightened market volatility through the rest of the first quarter. Implied volatility in DIA, which is designed to equal roughly 1/100th of the Dow, is moving up 18.5 percent to 17.

Implied Volatility Mover

Frontier Communications (NYSE:FTR), which has been pounded for a 22 percent loss so far in 2012, is off 14 cents to $4. The stock saw a volatile move lower a couple of weeks ago and tumbled to a low $3.81 (see 1/27 color) on heavy volume, but not company specific headlines. Shares made a rebound attempt in the week that followed, but are on a six-day losing skid. Implied vols are up considerably Friday — +18 percent to 73 — with a lot of the options activity focused on February 4 calls. 18,100 traded, including a 5000-lot for 20 cents on BATS when the market was 15 to 20 cents. A sweep this morning of 6494 contracts for 25 cents is an opening buyer, according to data from the exchange. Feb 4 puts are seeing interest as well. 7,137 traded, as some players seem to be bracing for additional volatility in shares of the Stamford, CT telecom in the week ahead.

Unusual Volume Movers

Bullish flow detected in Imperial Sugar (NASDAQ:IPSU), with 3242 calls trading, or 20x the recent avg daily call volume in the name.

Bullish flow detected in Frontier Communications Corporation with 23477 calls trading, or 5x the recent avg daily call volume in the name.

Bullish flow detected in Rackspace Hosting (NYSE:RAX), with 6890 calls trading, or 3x the recent avg daily call volume in the name.

Bullish flow detected in Direxion Daily Large Cap Bear 3X Shares (BGZ), with 5948 calls trading, or 8x the recent avg daily call volume in the name.

Meanwhile, high options volume is being seen in Petrobras (NYSE:PBR), Nuance (NASDAQ:NUAN), and Diamond Foods (NASDAQ:DMND).