Friday Options Recap

by: Frederic Ruffy


Stock market averages fell Friday afternoon, as a government shut-down looms. The market showed impressive resilience early and market averages were little changed through midday. The only economic data of the day was a report on Wholesale Inventories for February, which was in-line with estimates at +1 percent. Crude oil gained 2 percent and moved to $112.50 a barrel. At the same time, gold hit record highs and silver rallied beyond $40. Most of the focus is on the events in Washington, however, where parties are trying to iron out budget differences to avoid a shut-down of “non-essential” government operations. The uncertainty seems to be weighing on investor sentiment late Friday ahead of the weekend and the Dow Jones Industrial Average is down 70 points in the final hour. The tech-heavy NASDAQ lost 21.7. CBOE Volatility Index (.VIX) added .97 to 18.08. Overall options volume is unimpressive, however, with 6.9 million calls and 6 million puts traded so far.

Bullish Flow

The top equity options trade through midday Friday is in BofA (NYSE:BAC), which is down a nickel to $13.56. It’s a 20000-contract block of April 14 calls at 14 cents on ISE and an opening customer buyer, according to ISEE data. 55,840 contracts traded (81 percent Ask), which also makes the BAC April 14 call today’s most actively traded equity options contract. The market is now 12 to 13 cents and the delta is .29. Some investors might be taking positions in anticipation of earnings. BofA reports the morning of April 15, which is options expiration Friday.

Bearish Flow

Puda Coal (NYSEMKT:PUDA), a coal company serving China’s steel industry, is reeling and puts are active for a second day this week on a negative newsletter mention. Shares are down $2.62 to $6.48 and total volume is 38,000 puts/23,000 calls and 10X the average daily. April 6 puts, which are now 48 cents OTM and have open interest of just 64 contracts, are the most actives. 5,800 traded (53 percent Ask). April 5, 7, 8 and 10 puts are busy as well. The negative mention was apparently a fraud report from Alfred Little, according to the streetinsider (dot com). PUDA saw bearish trading earlier this week as well (see 4/5 color) and shares are now down 48.9 percent since March 30.

Implied volatility Mover

Volume in the index pits has been anemic this week, even as investors grapple with a host of uncertainty including a possible government shut-down, crude oil prices up 2 percent today to more than $112 a barrel, the economic impact of the Japan quake and nuke crisis, the ongoing European debt problems, and the upcoming earnings-reporting season. Despite the uncertainty, CBOE Volatility Index (.VIX) hit a low of 16.51 today and 47.2 percent below the levels seen on March 16. Meanwhile, overall volume in the S&P 500 Index and other cash products has fallen sharply as well. 434,000 calls and 430,000 puts traded so far Friday. By way of comparison, 1.6 million puts and 1.2 million calls traded across the indexes on March 16. The lack of hedging activity is interesting and seems to reflect the view that, while there is myriad of global uncertainty, there have been no significant earnings warnings and improved corporate profitability will keep a floor under the stock market. We’ll soon find out. Alcoa (NYSE:AA) kicks off the earnings-reporting season Monday.

Unusual Volume Movers

Bullish flow detected in Endeavour Silver (NYSE:EXK), with 6320 calls trading, or 2x the recent avg daily call volume in the name.

Bearish activity detected in Yongye International (NASDAQ:YONG), with 6307 puts trading, or 4x the recent avg daily put volume in the name.

Bullish flow detected in Apollo Group (NASDAQ:APOL), with 19171 calls trading, or 4x the recent avg daily call volume in the name.

Increasing volume is also being seen in Expedia (NASDAQ:EXPE), AMR Corp. (NASDAQ:AMR), and United Continental (NYSE:UAL).