Friday Options Recap

Jan. 28, 2011 4:20 PM ETNLOK, F, GM, WM, BBD, GSK, NBR, MSFT, AMZN2 Comments
Frederic Ruffy profile picture
Frederic Ruffy


Fear resurfaced Friday, as investors reacted to disappointing earnings and economic news, while anxiety levels rose following another day of unrest in the Arab world. Microsoft (MSFT) is down 4 percent and the biggest casualty in the Dow Jones Industrial Average after investors expressed disappointment with the software maker’s latest profit report. Ford Motor (F) and (AMZN) also fell on earnings news. Meanwhile, the day’s economic news showed GDP growing at a 3.2 percent annual rate in the fourth quarter. Economists were looking for an increase of 3.7 percent. Some investors also seem unsettled by the escalating anti-government protests in Cairo and other Egyptian cities. The latest reports indicate that the Internet has been shut down and a curfew has been imposed to thwart further protests. However, demonstrations have been spreading throughout the Arab world like wildfire after Tunisian citizens ousted their leader on January 14. Concern about instability in the region and the risk of contagion has the Dow Jones Industrial Average down 166 points in the final hour. The tech-heavy NASDAQ has been hit for a 62-point loss.

Bullish Flow

Symantec (SYMC), which hit a high of $18.79 on earnings yesterday, is down 66 cents to $17.25. The stock has given up yesterday’s post-earnings gains and then some. Meanwhile, a noteworthy trade in SYMC is a buyer of 16,000 Jan13 $17.5 calls at $3.60 each. 16,690 now traded vs. 51 contracts in open interest.

GM (GM) is trading down 83 cents to $37.83 in sympathy with Ford (F), which lost 5.4 percent after reporting earnings of 30 cents per share and 18 cents below Street estimates. A noteworthy spread traded in GM late yesterday ahead of the news. One strategist bought 2,500 June 37 calls and sold the June 33 – 42.5 strangle, 3,750X. They paid $1.15 for the package and opened a new bullish position, which is essentially selling June 33 puts to buy the June 37 – 42.5 (2X3) call ratio spread. Meanwhile, GM Feb 40 calls, which expire in three week and are now 5.7 percent out-of-the-money, were the most actives yesterday. 17,329 traded (61 percent ask), creating 13,926 in open interest, to 46,437 contracts and now the largest position in General Motors options.

Bearish Flow

Waste Management (WM) touched a new 52-week high early, but gave up the gains and is off 46 cents to $37.88. Morning options trades include a multi-exchange sweep of 5,134 April 31 puts at 20 cents each when the market was 10 to 20 cents. 5,193 traded vs. 2,157 in open interest. At about the same time, a separate sweep of 3,171 March 33 puts raded 15 cents when the marekt was 5 to 15 cents. 3,342 traded vs. 2 in open interest. The action comes after a 7 percent rally in WM since 1/11/11. Implied volatility is up 18 percent to 19 heading into earnings, Feb 17 (before market).

Implied Volatility Mover

CBOE Volatility Index (.VIX) has seized 3.34 points to 19.49 and is at its highest levels since early-December, as the flight-to-safety trade is suddenly popular again. The day’s options volume includes 9.5 million puts and 9.4 million calls. Meanwhile, gold hit a lot of $1307 early, but has since rallied back to $1340. Treasury bonds finished with gains and crude oil bubbled $3.69 higher, to $89.33. Fear is back.

Unusual Volume Movers

Bullish flow detected in Banco Bradesco (BBD), with 24963 calls trading, or 21x the recent average daily call volume in the name.

Bearish activity detected in GlaxoSmithKline (GSK), with 6656 puts trading, or 7x the recent average daily put volume in the name.

Bullish flow detected in Nabors Industries (NBR), with 7828 calls trading, or 3x the recent average daily call volume in the name.

Increasing volume also seen in Ford (F), Microsoft (MSFT), and (AMZN).

This article was written by

Frederic Ruffy profile picture
I'm an experienced options/futures trader, analyst, and freelance writer. I worked as an institutional options trader for a New York-based institutional brokerage firm in the 90s and started my own business in 2001. My focus is on the US listed options market, but also trade futures and single stock options. There are no free lunches in this world. Trading successfully takes a lot of hard work and markets change often. In addition, trading options and futures can involve substantial risk. If you are new, please understand the ins and outs of the products before you trade. Feel free to ask me questions if you have any. Thanks for your interest.

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