Friday Options Recap

by: Frederic Ruffy

Trading was mixed through midday, but stock market averages are lower ahead of the Memorial Day weekend. Modest gains across Eurozone equity markets and better-than-expected consumer confidence numbers helped set the table for steady trading Friday morning. The University of Michigan said its Consumer Confidence Index rose to 79.3 in May, from 77.8 mid-month and better than 77.5 that was expected. However, the Dow had again slipped into the red midday and the decline continued into afternoon trading. The industrial average is now 84 points and falling to session lows. The Nasdaq erased early gains and is down 5 points. However, market breadth reflects mixed trading, with 225 S&P 500 stocks moving higher and 560 heading lower. Crude oil ticked up 18 cents to 18 cents to $90.84 and gold gained $14 to $1571.50. With a little more than an hour to trade before the three-day weekend, CBOE Volatility Index (.VIX) is up .42 to 21.96 amid anemic volumes in the options market. 4.3 million calls and 4.4 million puts trades across the exchanges so far.

Bullish Flow

Idenix (NASDAQ:IDIX) loses 27 cents to $9.81 and an investor apparently sells 8,000 July 7.5 puts on the biotech at 55 cents to buy 8,000 Jul 12.5 – 17.5 call spread for 90 cents. The three-way, for a 35 cent debit, saw interest yesterday as well, including 7,000 for 30 cents. 11,000 traded Thursday and OI indicates new positioning. Upside July 17.5 call buyers were also busy in IDIX Tuesday. Prior to today, the stock had recorded a four-day 24.75 percent rally on optimism for a settlement with Gilead in a patent case related to a Hepatitis C drug. BofA is out with a note this morning saying a settlement could translate into $6 per share in royalties.

Bearish Flow

PowerShares QQQ (NASDAQ:QQQ) is off 9 cents to $62.06 and a Sep 57 – 62 put spread is sold on the ETF at $1.64, 40000X. The action probably rolls a position in Sep 62 puts, bought to open, on May 11 for $2.53 per contract on ISE. Shares are down a little more than 4 percent since that time and the position is being liquidated at $3.52. A new position in Sep 57 puts, representing $228 mln in notionals, is being opened for $1.88 per contract.

Implied Volatility Mover

Verifone Systems (NYSE:PAY) is down $6.91 to $38.09 and reeling today after reporting better than expected Q2 results, but guiding estimates lower for the third quarter. Volume is a heavy 18 million shares, and 10X the expected for midday. 29,000 puts and 9,600 calls traded on the San Jose, CA electronic payment systems company. Some investors are getting paid on Jun 43 puts, which are the most actives. 6,141 traded against 6,195 in open interest. The bulk of the OI is from yesterday when the contract was trading in small lots at a VWAP of $1.63 per contract. Average price today is $4.73 per contract. Oct 40, Jun 40, Jun 36, July 32, and Jun 38 puts are the next most actives in PAY today and 30-day ATM vols have eased 18 percent to 48.

Unusual Volume Movers

Bullish flow detected in Ariba (NASDAQ:ARBA), with 7293 calls trading, or 4x the recent average daily call volume in the name.

Bullish flow detected in Ship Finance (NYSE:SNF), with 2013 calls trading, or 9x the recent average daily call volume in the name.

High options volume is being seen in Idenix (IDIX), Elan (NYSE:ELN), and Vivus Pharmaceuticals (NASDAQ:VVUS).

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