Friday Options Update: MS, XLF, GFG, MTB, XLB, BMRN, IWM

Rebecca Engmann Darst co-authored this report.

Morgan Stanley (MS) – News of a broad-based government initiative to resuscitate the entire American financial sector sent bank and brokerage shares hurtling higher as volatility crashed lower (the VIX, we should note, has quickly shrunk back to the 30 level after breaking 42 in yesterday’s highly-charged session)  in Friday’s expiration-day trading session. Shares in Morgan Stanley, which yesterday battled back from the precipice thanks to an SEC curtailment of short-selling on financial sector stocks, are up by more than one-third today, regaining the $30 level to read $30.19 over the noon hour. With calls and puts trading in relative balance today, we’re seeing some evidence of traders trimming positions at that October 7.50 put strike that was so alarming yesterday.  Front-month calls at the September 30 strike are trading in excess of open interest, with traders bidding up the price to $1.25 (a 257% increase from yesterday’s session) on  bets over whether Morgan Stanley can sustain a close above $30 today. We also observed traders appearing to sell out of puts at the January 25 strike at $5.50 per contract. 

 

Financial Select Sector SPDR (XLF)  –The surreal euphoria extended to the Financial Select Sector SPDR , the financial services basket that is up 12.6% on the session to $22.54 with calls outtrading puts by a proportion of 1.3 to 1 on this most-momentous of expirations. Besides heavy volume in October calls at strikes 19 and 20, we noted large-scale activity in excess of open interest at the October 22 put strike, which has traded 50,000 times and appears to be attracting long interest. Another huge glut of volume, a 100,000-lot position, appears to have been opened late this morning in December 18 puts at $1.25 per contract. We are awaiting more details on this highly unusual trade.

Guaranty Financial Group (GFG) – Despite a broader rally in most financial stocks, shares in Guaranty Financial Group, the second-largest publicly listed financial holding company in the state of Texas, are down  nearly 18% to $5.55. Activity in its options amounting to 11 times the normal level has sent implied volatility nearly 54% higher today to 75.8%. The action here is occurring mostly in September and October calls at the 5.0 level, in what looks like the rollover of an existing position to the ascending month.

M&T Bank Corp (MTB) - Shares in M&T Bank Corp are reading 7.2% higher at $96.60 at present, as its options trade at 10 times the normal level, owing to what looks like call selling at the October 70 strike at $27.00 apiece and buying in January ’80 puts at $14.70 apiece. Volume at each strike appears in excess of open interest according to our options data.   

XLB – Shares in a closed-end fund indexed to a basket of commodity stocks rose 5.7% to $38.26. Option activity in the XLB, whose components include heavies Freeport McMoran (FCX), Newmont Mining (NEM) and Alcoa (AA) , rated among the most active tickers on our platform with nearly 38,000 options in play. Activity appears concentrated at the December 38 straddle, where volume roughly equivalent to the open interest appears (thus precluding us from confirming that this is opening options action). While both call and put sides appear to have been bought, a buyer of this position would pay $5.20 for a position requiring either a break above $43.20 or below $32.80. 

Biomarin Pharma (BMRN) – Shares in Biomarin Pharmaceuticals are trading flat-to-higher with a .17% uptick to $28.69. Options are trading around 6 times the normal level owing to what looks like straddle selling in the October contract at the 30 level.

iShares Russell 2000 (IWM)  – Shares in the iShares Russell 2000, which tracks a basket of small-cap stocks including Alexion Pharmaceuticals (ALXN), Myriad (MYGN) , and Energy Conversion Devices (ENER) are up 4.2% to $74.80 as options volume of 759,000 lots qualifies the ETF for our scan of most active option families. The volume here shows puts outtrading calls by a factor of 2.5, with put spreaders drawn to the October contract between strikes 68 and 72 – a 15,000 lot trade here for a $1.00 spread was logged to the middle of the market. A long trader of the spread would have paid the $1.00 as a debit, scoring 3 times that amount if ETF shares trade between the range of the strike prices at October expiration. We also observed what look like 2-by-1 put spreads in the November contract between strikes 70 and 73.

Comments

[sumosama:]

Without question or exception (okay, maybe except for Eli's), the best and most worthwhile posts on SA! Thank you for the great work!

2008 Sep 22 03:52 PM