Friday Options Recap

by: Frederic Ruffy


Stock market averages are deep under water after the latest jobs data fell well short of expectations. According to the Labor Department, the U.S. economy added zero new jobs last month. Zilch! What?!? Economists were looking for about 100,000 new jobs. The unemployment rate was stuck at 9.1% and average hourly earnings declined by .1%. If that wasn’t bad enough, June and July numbers were also revised lower. Volatility across the eurozone is also weighing on investor sentiment. France’s CAC 40 Index, Germany’s DAX and Spain’s IBEX all fell more than 3% on concern that plans to help debt-ridden Greece are falling apart. In afternoon trading, the Dow Jones Industrial Average is down 240 points and probing session lows. The Nasdaq is down 64.9 points. CBOE Volatility Index (.VIX) jumped 1.82 to 33.64. Trading is slowing ahead of the three-day Labor Day weekend, with 5.7 million calls and 6.5 million puts traded so far.

Bullish Flow

Wells Fargo (NYSE:WFC) loses 89 cents to $24.34 and 10,900 Jan13 $25 calls on the bank are bought at $4.25. The block looks opening and was tied to stock (delta neutral). Jan13 $25 calls on Wells Fargo are now 2.7% OTM with a delta of .55 and 9,991 in open interest. Shares are down 6.8% over the past two days, but 7.7% above the intraday 52-week low of $22.58 set on 8/10. Wells Fargo last reported earnings on 7/19.

Bearish Flow

Microsoft (NASDAQ:MSFT) loses 39 cents to $25.82 and is one of30 Dow stocks trading lower today. Recent options trades in the software-maker include an Oct 17.5 – 25 (2X1) put ratio spread, bought at 67 cents, 7500X. The strategist bought one 25 put and sold two 17.5s. It was tied to stock, delta neutral and, while possibly a roll down in strikes, it appears to be a new position. If so, the strategist is bracing for additional volatility in MSFT shares, as the max payoff at expiration is at $17.5 per share, which represents a 30.9% loss in MSFT over the next seven weeks. 30,000 calls and 40,000 puts now traded in Microsoft, which is about typical volume through mid-day.

Implied Volatility Mover

SilverCorp Metals (NYSE:SVM) falls to new 52-week lows today and is down $1.06 to $7.35 after the company received a letter from an anonymous source alleging accounting fraud. The letter was apparently forwarded to the company from the Ontario Securities Exchange (unconfirmed). Options on the stock are seeing brisk trading as well. 22,000 calls and 34,000 puts traded so far. Sep 6 and 7 puts are seeing the most action. The activity seems to include a mix of buying, selling, opening and closing activity. SVM has been the subject of bearish flow multiple times over the past week (see 8/26, 8/29, 8/30 color). Now we know why. Implied volatility in options on the stock is up another 31% and moving to new highs at 176%.

Unusual Volume Movers

Bullish flow detected in AuRico Gold (NYSE:AUQ), with 2,446 calls trading, or 3x the recent average daily call volume in the name.

Bullish flow detected in Cypress Semiconductor (NASDAQ:CY), with 5,740 calls trading, or 3x the recent average daily call volume in the name.

Bullish flow detected in Amkor Technology (NASDAQ:AMKR), with 3,032 calls trading, or 9x the recent average daily call volume in the name.

Increasing options action is also being seen in Staples (NASDAQ:SPLS), Symantec (NASDAQ:SYMC) and Finisar (NASDAQ:FNSR).