Friday Options Recap

by: Frederic Ruffy


Stock market averages are holding gains with help from soothing words from Fed Chairman Ben Bernanke. The table was set for morning losses on Wall Street after the latest GDP report showed the US economy growing at a 1 percent annual rate in the second quarter. Economists were expecting a 1.1 percent increase.

Trading remained tentative heading into a UofMichigan Sentiment Index (55.7 vs. 55.8 consensus) and a speech from Bernanke's meeting in Jackson Hole, WY. Stocks sold off when the Fed Head failed to deliver promises of additional easing measures, but then a rally took stock market averages higher at midday. While Bernanke didn’t promise additional easing today, the FOMC September meeting will be a two-day event rather than one day and officials will mull over policy options at that time.

Stock market averages are now drifting lower in the final hour ahead of Hurricane Irene – which is expected to wreak havoc along the East Coast over the weekend and possibly limit trading on Wall Street Monday morning. Options volume is respectable, but slowing. 8.1 million calls and 8.7 million puts traded across the exchanges so far.

Bullish Flow

GE (NYSE:GE) adds 20 cents to $15.65 and a bullish ratio risk-reversal trades on the stock after one strategist sold 22,500 Jan 11 puts at 39 cents to buy 15,000 Jan 19 calls at 23 cents. The position looks like a new one and was tied to 435K shares at $15.63. GE is one of thirty Dow stocks holding gains for the day. On the week, shares are up 3.6 percent. Still, GE is down 18.6 percent over the past five weeks (from $19.16 on 7/21). The combo might be a play on the stock recovering those losses through Jan 2012.

Intel (NASDAQ:INTC) adds 44 cents to $19.86 and the top options trade in the chipmaker today is a 10000-contract block of Jan 16 puts, sold at 53 cents and tied to 180K shares at $19.86. It's possibly closing and or a bet that shares will hold above $16 (~19.4%) through the January expiration. INTC is up 3.5 percent this week and has not traded for less than $16 since July 2009.

Bearish Flow

Star Scientific (CIGX) is down $1.14 to $1.86 and options on the stock are busy today after a court ruled against the company in a patent dispute. Shares are reeling and today's options volume of 40,000 calls and 32,000 puts is 9X the average daily for the name. The top trade is a Sep 1.5 - 2.5 put spread apparently sold at 70 cents, 3824X on ISE. It's possibly a roll down in strikes. 15,540 Sep 2.5 puts now traded against 7,468 in open interest. The contract is 25.6 percent ITM and expires in 21 days. Sep 1.5 puts, Sep 3 calls, and Sep 3 puts on CIGX are seeing active trading as well. Implied volatility jumped 26 percent and remains elevated at 163. Order flow seems to reflect expectations for large price swings in shares in the weeks ahead.

Implied Volatility Mover

VIX hit a morning high of 43.84, but has come down sharply after Federal Reserve Chairman Ben Bernanke said the FOMC will meet for two days instead of one at the September meeting to discuss policy options. Although the S&P 500 is off 7.7 points through mid-morning, VIX is down 1.80 to 37.96 and 13.4 percent off session highs now that the event risk has passed. Action is brisk in the pit, with 107,000 puts and 51,000 calls traded in VIX so far. Sep 27.5, Feb 17, Jan 17 and Nov 22.5 puts are among the most actives.

Unusual Volume Movers

Bullish flow detected in Sealed Air Corp. (NYSE:SEE), with 4549 calls trading, or 26x the recent avg daily call volume in the name.

Bearish activity detected in Silvercorp Metals (NYSE:SVM), with 9955 puts trading, or 3x the recent avg daily put volume in the name.

Bullish flow detected in Cypress Semiconductor (NASDAQ:CY), with 3482 calls trading, or 2x the recent avg daily call volume in the name.

Meanwhile, high options volume is being seen in Star Scientific (CIGX), Virgin Media (NASDAQ:VMED), and Aruba Networks (NASDAQ:ARUN)

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