Friday Options Recap

by: Frederic Ruffy

Stocks are trading mixed on a relatively slow day of market action Friday. After Thursday’s 340-point rally, the Dow Jones Industrial Average failed to find direction in morning trading Friday. Trading was orderly on the other side of the Atlantic after European stock benchmarks and the euro gave back only a fraction of the huge gains recorded the day before. Meanwhile, the domestic economic news included a report on personal incomes, which increased by .1 percent last month and .2 percent less than expected. Not to worry, as the lack of incomes didn’t discourage spending – which increased by .6 percent and in-line with expectations. The University of Michigan Consumer Sentiment Index released later was up to 60.9, from 57.5 mid-month and better than the 58 that was expected.

The data didn’t move the market. Instead, the tone of trading is wait-and-see ahead of a busy week of earnings and economic news next week. ECB meets Thursday and jobs data are due out Friday. The Dow Jones Industrial Average is now flat at 12,209. The tech-heavy NASDAQ has given back 5.9 points. CBOE Volatility Index (.VIX) is down .65 to 24.81 and set to close at its lowest levels since August 3. Trading in the options market is slowing. With thirty minutes left to trade, volume across the exchanges is 7.4 million calls and 6.3 million puts.

Bullish Flow

US Steel (NYSE:X) rallied this morning and is trading up $2.17 to $27.14. Options volume on the steelmaker is running 2.5X the daily average, with 86,000 calls and 23,000 puts traded on the stock so far. The top trade is a Nov 26 – 28 call spread sold at 90 cents, 7500X. Both contracts now traded more than 10K and might roll positions opened just yesterday when open interest in Nov 26s increased by 12,000. If so, the contract, which traded 14830X at a VWAP of $1.17 yesterday, is being liquidated at $2.35. New positions being initiated in Nov 28s for $1.45. Some of the steel names are rallying around news that Iron Ore prices are down sharply as Chinese companies are buying less of the steel-making ingredient.

MEMC (WFR) loses 17 cents to $6.56 and implied volatility in the silicon wafer maker is higher on increasing interest in Nov 7 calls on the stock. 6,259 traded (59 percent Ask) against 4,830 in open interest. The top trade is a 571-lot at the 35-cent asking price. Data suggest a closing trade. Still, implied vols in WFR are up 14 percent to 74 today and the increasing interest in upside calls on the stock comes ahead of a Nov 2 (after market) earnings report.

Bearish Flow

L&L Energy (NASDAQ:LLEN) is up 17 cents to $2.65 and put volume is picking up in the Seattle-based coal company. Today's total flow of 4,145 puts and 790 calls is 11X the daily average for the stock, which sees typical volume of about 450 contracts. Dec 4 puts, which are already $1.35 in-the-money, are the most actives. 1,378 traded (77 pecent Ask) against 2,256 in open interest. It's possibly closing. Dec 3 and Mar 1 puts are seeing similar action. Meanwhile, implied vols in LLEN are up 8 percent and elevated at 121, as some investors might be bracing for a decline in shares after a 19 percent gain since 10/19. Prior to that, LLEN had plummeted nearly 80 percent year-to-date.

Implied Volatility Mover

After falling to its lowest levels since August 4 yesterday, CBOE Volatility Index (.VIX) adds .21 to 25.67 on a relatively quiet morning of trading after a 42.5-point surge in the S&P the day before. Early trades in the VIX pit Friday include a 15000-contract block of Nov 25 puts sold at $1.425. 51,372 traded. Nov 25 puts were the most actives in VIX yesterday as well. 90,000 changed hands. Some investors might be liquidating positions after a 43.8 percent drop in the “fear gauge” since Oct 3. VIX Nov 25 puts have 210,135 in open interest, which is the largest position in the index today. The contract expires in 18 days.

Unusual Volume Movers

Bearish activity detected in Cablevision Systems (NYSE:CVC), with 5130 puts trading, or 18x the recent average daily put volume in the name.

Bearish activity detected in DIRECTV (NYSE:DTV), with 5839 puts trading, or 3x the recent average daily put volume in the name.

Bullish flow detected in Canadian Solar (NASDAQ:CSIQ), with 2621 calls trading, or 4x the recent average daily call volume in the name.

Meanwhile, iShares Japan Fund (NYSEARCA:EWJ), Corning (NYSE:GLW), and Las Vegas Sands (NYSE:LVS) are seeing unusually high options volume today.