Friday Options Recap

by: Frederic Ruffy


Stocks are broadly lower late Friday. The tone of morning trading was cautious after China’s Shanghai index plummeted 5.2 percent on inflation fears. The volatility spilled over to Asia’s other markets and into Europe, where things are already skittish due to the ongoing debt problems. Trading was orderly through mid-morning and after the UofM consumer sentiment index showed improvement to 69.3 in November and a bit better-than-expected. Volatility picked up later in the day, however, on reports the Fed’s QE2 plans to begin buying Treasurys today hit a glitch. Stocks faltered on the news and the Dow Jones Industrial Average is down 85 points heading into the final hour. The Nasdaq is off 31. The CBOE Volatility Index (.VIX) is up 1.70 to 20.34. Options volume is robust. With about 9.1 million calls and 7.8 million puts traded so far.

Bullish Flow

Disney (NYSE:DIS) shareholders have been on an interesting ride over the past two days. Shares came under pressure late yesterday and fell to $35.15 after the company’s earnings release was leaked early and made the rounds before the closing bell Thursday. The company was due to report after market. Shares later recovered in after hours and opened at $36.76 Friday morning. DIS was able to build on the early strength and notched a new 52-week high. The stock is now up $2.07 to $38 and the best gainer in the Dow. 43K calls and 34K puts traded on Disney. Nov 38 puts are the most actives. 11.4K now traded, mostly in smaller lots and 74 percent on the bid. Nov 37 puts, Nov 37 calls and Nov 38 calls are actively traded as well. Implied volatility is up 3 percent to 23, as most of the post-earnings crush apparently happened late-yesterday when the company’s earnings were mysteriously leaked early.

Bearish Flow

NVidia (NASDAQ:NVDA) is up 92 cents to $13.53 post earnings and one strategist sells the Jan 14 – Jan12 $22.5 call spread at 29 cents, 16000X on PHLX. This likely exits a position opened in late-Sep when the same spread traded at 16 cents, 17650X. At that time, the strategist sold the deep out-of-the-money Jan12 $22.5 calls to buy the Jan 14 calls. They did a similar spread in the Mar 15 – Jan12 $20 calls, 15,430X. (see 9/24 color or in Flow Monitor, enter 1, and then + — Premium). Looks like they’re exiting most of the the Jan 14 – Jan12 $22.5 call spread today (13c profit), but leaving the Mar 15 – Jan12 $20 call spread open.

Implied Volatility Mover

CBOE Volatility Index (.VIX) is up 1.97 to 20.61 and session highs. In addition to the sell-off in China’s equity markets today (Shanghai Composite down 5.2 percent), anxiety levels are elevated on talk the Fed’s first day of Treasury purchases has hit some sort of a glitch. The Federal Reserve was expected to buy $6-8 billion in Treasurys today as part of QE2. Bonds are under pressure and the yield on the ten-year has spiked 12 bps to 2.765 percent.

Unusual Volume Movers

Bullish flow detected in Cheniere Energy (NYSEMKT:LNG), with 2018 calls trading, or 5x the recent avg daily call volume in the name.

Bearish activity detected in Aruba Networks (NASDAQ:ARUN), with 6549 puts trading, or 3x the recent avg daily put volume in the name.

Bearish activity detected in CF Industries (NYSE:CF), with 12530 puts trading, or 3x the recent avg daily put volume in the name.
Increasing volume is also being seen in Cisco (NASDAQ:CSCO), Boeing (NYSE:BA), and Huntsman (NYSE:HUN).