Friday's Options Recap

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Includes: BCS, BEAM, FINL, GE, GM, KBH, MATK, WAT, WFC
by: Frederic Ruffy

Sentiment

The major averages pulled back Friday, as the financial headlines held no news items that might inspire another round of aggressive buying in the equity market. Stock index futures were lower before financial markets opened for trading in New York, as overseas equities slumped and Google (NASDAQ:GOOG) said late Thursday that it was laying off 200 workers. An earnings warning from Accenture (NYSE:ACN) seemed to weigh on sentiment as well.

Meanwhile, the day's economic news was mixed. Data released pre-market showed personal incomes falling .2 percent and spending increasing .2 percent in February. Economists were looking for incomes to fall 0.1 percent and spending to increase 0.2 percent. Separate data released about 30 minutes into the trading session showed modest improvement in consumer sentiment. The University of Michigan Sentiment Index rose from 56.6 to 57.3 in late-March. Economists were expecting the index to stay unchanged.

Yet, after a 647-point rally in the Dow Jones Industrial Average Monday through Thursday, mixed economic news wasn't enough to help extend the recent advance. Instead, some investors were probably banking profits ahead of the weekend, and into the final two business days of the third quarter. The Dow is down 115 points heading into the final hour of trading. The CBOE Volatility Index (.VIX) gained .43 to 40.79. Trading in the options market is on the light side, with approximately 4.6 million calls and 3.9 million puts traded so far.

Bullish Flow

Barclay's (NYSE:BCS) is up $1.73 to $9.88 and April and June calls at the $10 strike are being bought Friday . Sentiment is bullish after Dow Jones reported the Federal Services Authority (FSA) did a stress test of the bank's balance sheet and profit and loss account. FSA concludes that BCS' capital position and resources meet capital requirements after exposure to stress.

Martek Biosciences (MATK) is up $1.16 to $20.86 and calls are active Friday. Shares saw a boost late Thursday on news MATK signed a long-term supply agreement with Ragasa. Under the terms, Ragasa agrees to buy all of its DHA omega-3 needs from MATK and will introduce a consumer product featuring Martek's flagship life's DHA. In the options, 4,400 calls traded, or more than 100X the normal volume for the first hour of trading. Investors are actively trading April calls at the 17.5 and 20 strikes.

Bearish Flow

General Motors (NYSE:GM) is up 19 cents to $3.60, but 14 percent below its best levels of the session ($4.19). Shares saw a spike lower about 20 min ago on a CNBC report that the automaker will offer its union $10 bln in preferred stock at 9 percent. The story is still developing. GM implied vols are back up to 205, from about 192 Thursday. May and June puts at the $2 strike are the day's most actives.

Bearish traders resurfaced in Fortune Brands (FO) Friday. Trading was brisk in FO June, Sept, and Jan-10 puts at the $10 strike when the stock came under pressure on March 9. Shares are up 48.8 percent since that time, to $26.79, and the focus today is on the June 20/25 put ratio spread, which was bought 2500X for 60 cents.

Implied Volatility Movers

KB Homes (NYSE:KBH) implied volatility is lower after the homebuilder reported quarterly loss of 75 cents per share, which was not as bad as the 81-cent loss analysts had expected. Shares are up 10 percent to $15.57 and implied volatility is falling back below 90, from 97 Thursday and 120 on March 2.

Implied volatility is also lower in Wells Fargo (NYSE:WFC), General Electric (NYSE:GE), and Finish Line (NASDAQ:FINL). Meanwhile, implied volatility is higher in General Motors (GM), Waters (NYSE:WAT), and Barclay's (BCS).