Friday Options Recap

by: Frederic Ruffy


Stocks are trading mixed, as the options expiration has failed to stir up much market volatility thus far today. Trading was choppy early, as focus remained on events overseas including a move by Chinese monetary officials to curb lending by Chinese banks. The concern is that interest rate hikes are also in the offing and the tighter policy in China will slow an important source of global economic growth. Meanwhile, the euro is recapturing some of its recent losses on diminishing worries about the European Debt Crisis, as EU, IMF and Irish officials iron out plans to bail out the Irish banks. At the end of the day, however, there hasn't been much news to guide the market one way or the other. With 90 minutes left to trade, the Dow Jones Industrial Average is up 3 points and the NASDAQ added 4.5. Trading in the options market is active due to the expiration, but beginning to slow ahead of the weekend. 7.2 million calls and 5.2 million puts traded so far.

Bullish Flow

Wellpoint (WLP) adds $1.68 to $58 and recently hit session highs of $58.20. The options action is unusual, as morning trades includes a buyer of 10,000 Dec 52.5 puts at 80 cents per contract. Beyond that, the flow seems somewhat bullish, as 48K calls and 26K puts traded in the name. Recent trades include a block of 4537 Dec 57.5 calls bought to open at $2.35 on ISE. Dec 60 calls are the most actives, with 18000X traded. Implied volatility is up 6 percent to 35.5. It's not clear what's driving the action, but note that Unitedhealth (NYSE:UNH), Aetna (NYSE:AET), Cigna (NYSE:CI), and Health Net (NYSE:HNT) calls are busy today as well.

Bearish Flow

Cisco (NASDAQ:CSCO) is off 8 cents to $19.53 and a noteworthy spread surfaced in morning trading, after one strategist apparently paid $3.47 for the Jan12 15 - 22.5 put spread, 35350X. The spread, which looks opening, was probably tied to 1.52 million shares at $19.62. It has also traded more than once, as volume in both contracts is approaching 40K. CSCO shares fell 16.2 percent on earnings news last Thursday. Today, the company authorized up to $10 billion in additional stock purchases.

Implied Volatility Mover

CBOE Volatility Index (.VIX) is down .34 to 18.41 even as the S&P 500 loses 2 points Friday. Although the S&P 500 saw big moves Tuesday and Thursday, it lost just 5 points on the week and actual volatility remains at low levels. The 20-day historical volatility of the S&P 500 is just 11.8 percent. Therefore, at 18.4, VIX is implying much higher levels of volatility for the future, compared to what has actually happened in the past. Yet, some players seem to be bracing for a higher VIX in the weeks ahead. 204,000 calls and 57,000 puts traded on the volatility index through midday. The top trade is a Dec 30 - 37.5 (1X2) call ratio spread, apparently bought at 15 cents, 18000X in morning trading.

Unusual Volume Movers

Bullish flow detected in James River Coal (JRCC), with 3134 calls trading, or 2x the recent average daily call volume in the name.

Bullish flow detected in UnitedHealth (UNH), with 37195 calls trading, or 3x the recent average daily call volume in the name.

Bullish flow detected in Aetna (AET), with 26205 calls trading, or 6x the recent average daily call volume in the name.

Increasing volume is also being seen in MELA Sciences (MELA), (NYSE:CRM), and Seagate (NASDAQ:STX).