Friday Options Recap

by: Frederic Ruffy


A very uneventful quadruple witch expiration is coming to a close with mixed trading Friday. It was a light news day. The only economic stat of the day showed the leading economic indicators up 1.1 percent in November, which was in-line with estimates. A collective yawn greeted the data. Meanwhile, news that tax cuts passed the House seems to be offering some market support. A rally in Treasuries and stronger-than-expected earnings from technology heavyweight Oracle (NYSE:ORCL) bolstered sentiment as well. With forty-five minutes left to trade, the Dow Jones Industrial Average is down 10 points and the tech-heavy NASDAQ added 9. The CBOE Volatility Index (.VIX) is down 1.54 to 15.85 and probing its lowest levels since April. Trading in the options market is active due to the expiration. 8.2 million calls and 6.1 million puts traded so far.

Bullish Flow

Vale (NYSE:VALE) loses 27 cents to $33.82 and one strategist is rolling a block of 40K Dec 34 calls to 20K Jan 34 calls, paying $1.02 for this 2X1 call spread. It likely exits a position opened in late-October when 32000 Dec 34 calls were bought at 98 cents (see 10/28 color). The stock is up 50 cents since that time, but having failed to capture the $34 level, are being liquidated at a nickel ahead of the expiration. Ouch. A new position (half the number of contracts) opened in the Jan 34 calls at $1.12 per contract.

Bearish Flow

MGM Mirage (NYSE:MGM) is up 25 cents to $13.51 and a block of 50000 Jan 20 calls is sold at a penny. It likely exits positions opened almost one year ago. For example, 28000 were bought at $1.32 on Jan 11, 2010 and 20000 at 70 cents on Dec 23, 2009. Shares are up modestly since then, but nowhere near the $20 strike. This investor seems will to pay the transaction costs to get the position of the books before yearend. Ouch!

Astrazenca (NYSE:AZN) shares are trading down $2.73 to $46.50 after the FDA delayed approval of Brilinta heart medicine. Some investors seemed to be anticipating bad news, as volume hit 4X the average daily yesterday and the activity was concentrated in Dec 50 puts. 3,387 contracts traded. The top trade was 1,400 at $1.175 on ISE and an opening customer buyer, according to ISEE data. The contract is now bid at $3.30 and open interest is 8,475, the biggest position in AZN.

Implied Volatility Mover

Call buyers in the CBOE Volatility Index (.VIX) today, as the index falls to 84 to 16.55 and hits its lowest levels since April. One player bought 10,000 December 40s at 2 cents each and might be closing a trade ahead of next week’s VIX expiration. A 10,000 block of Mar 40 calls was bought at 85 cents, 10,000 January 40 calls at 15 cents, 10,000 Jan 35 calls at 27.5 cents, and 10,000 Jan 30 calls at 45 cents. 200000 calls and 72000 puts traded on the volatility index through midday.

Unusual Volume Movers

Bearish activity detected in Verigy (NASDAQ:VRGY), with 3122 puts trading, or 4x the recent avg daily put volume in the name.

Bullish flow detected in Yongye International (NASDAQ:YONG), with 2052 calls trading, or 4x the recent avg daily call volume in the name.

Bearish activity detected in Dean Foods (NYSE:DF), with 8297 puts trading, or 4x the recent avg daily put volume in the name.

Increasing volume is also being seen in Kohl’s (NYSE:KSS), Barrick Gold (NYSE:ABX), and Visa (NYSE:V)