Friday Options Recap

Includes: C, KBE, KBH, MDY, NKE, RDC, SD, TWX, XLK
by: Frederic Ruffy

Action was mixed through midday, but stock market averages strengthened in afternoon trading Friday. It’s been a light news day so far. The only economic stat on the calendar showed New Home Sales falling to an annual rate of only 313,000 homes in February. Economists were expecting an increase to 323,000 from 318,000. Trading was somewhat volatile in Asia, with Hong Kong’s Hang Seng and Tokyo’s Nikkei both losing 1.1 percent. However, the euro added .5 percent to 1.3265 on the dollar and stock market averages were little changed across much of the Eurozone. Meanwhile, crude oil edged up $1.46 to $106.81 and gold is shining with a gain of $21 to $1663.5 an ounce. In stock trading, the Dow Jones Industrial Average is up 47 points. The Nasdaq erased early losses and is now up 5 points. With 90 minutes left to trade, CBOE Volatility Index (.VIX) is down .69 to 14.88. Trading in the options market is slowing. 5.3 million calls and 5.3 million puts traded across the nine exchanges so far.

Bullish Flow

Sandridge Energy (NYSE:SD) is up 65 cents to $8.28 on high volume approaching 22 million shares, which is more than double the expected volume for the Oklahoma City, Okla. oil and gas company. Meanwhile, 29,000 calls and 2,000 puts traded in the name so far. Apr 9 calls, which sit nearly 9 percent out-of-the-money, are the most actives. Volume is approaching 8,000. Apr 7, Apr 9, May 9 and Jun 9 calls are also among the most actives in SD and levels of implied volatility moved up 10 percent to 47.

Citi (NYSE:C) is 11 cents higher to $37.01 on light volume of 14 million shares. Weekly 3/23 puts and calls on the stock have some pinning potential, as open interest in the at-the-money 37 straddle is a combined 25,000 contracts. However, Weekly (3/30) 37 puts are the most actives in Citi’s options today. 6,110 traded and data from one exchange is consistent with opening sellers. The contract has traded at a VWAP of 70.5 cents and some investors might be willing buyers of the stock if it dips below 37 next week and are writing puts ahead of the weekend. But overall volume is light, with 34,000 contracts traded and about half the norm for Citi. Levels of implied volatility in the options on the bank are unchanged at 34.5 today and not too far from the 2012 low of 31.1 set on 3/2, but still well above the 52-week lows of 20 of April 2011.

Bearish Flow

SPDR Technology Fund (NYSEARCA:XLK) loses 14 cents to $29.85 and an Apr 27 – 28 – 29 put fly is bought on the ETF for 9 cents, 20000X, to open. In other words, 40,000 April 28 puts were sold for the body of a butterfly spread. Half as many 27s and 29s were bought for the wings. This advanced options play will offer its best payout if shares fall to $28 through the expiration, or 6.2 percent four weeks from today.

Implied Volatility Mover

VIX loses .32 to 15.25 and it looks like a May 29 – 35 (1X2) call ratio spread is initiated on the index at 12.5 cents, 24000X. Open interest is sufficient to cover in both contracts, but if opening, the spread would be targeting a VIX settlement value of 35 at the May expiration — which is quite a bit higher than the 14.55 seen at the March expiration earlier this week. 54,445 May 35 calls now traded in the VIX pit.

Unusual Volume Movers

Bearish activity detected in Rowan Companies (NYSE:RDC), with 3023 puts trading, or 9x the recent avg daily put volume in the name.

Bullish flow detected in Time Warner (NYSE:TWX), with 4457 calls trading, or 3x the recent avg daily call volume in the name.

Bearish activity detected in SPDR S&P Midcap 400 (NYSEARCA:MDY), with 5801 puts trading, or 3x the recent avg daily put volume in the name.

Meanwhile, unusually high options volume is being seen in Nike (NYSE:NKE), KB Homes (NYSE:KBH), and SPDR Banking Fund (NYSEARCA:KBE).