Friday Options Recap

by: Frederic Ruffy


A now too familiar pattern of mixed trading continues Friday. The underlying tone was cautious early after data showed Gross Domestic Product improving at a weaker-than-expected 2.8 percent annual rate in the fourth quarter. Earnings disappointments from the P&G, Juniper Networks and Ford seemed to weigh on sentiment as well. However, the news was not all bad after the Univ of Michigan reported that its index of consumer sentiment ticked up to 75 in late-January and .5 points better than expected. Talk that Greece might reach a debt deal over the weekend seemed to help ease some recent concerns about the European debt mess and the euro is up .75 percent to recapture 1.32 on the buck. Consequently, mixed trading has returned and, with less than thirty minutes left to trade, the Dow Jones Industrial Average is down 45 points, but 60 points off session lows. The NASDAQ has added 15. CBOE Volatility Index (.VIX) hit a morning high of 19.16, but is down .28 to 18.29. Trading in the options market was busy this week, but is slowing heading into the weekend. 7 million calls and 5.9 million puts traded so far.

Bullish Flow

Hess (NYSE:HES) adds 15 cents to $55.14 and the top options trade on the New York-based oil refiner today is a 4,400-lot of Mar 60 calls for 74 cents per contract on ISE. Data suggesting an opening customer buyer. 6,560 now traded against 1,806 in open interest. May 50 and 52.5 calls on HES are seeing opening activity as well. 14,000 calls and 4,000 puts traded in the name and implied volatility is up 4.5 percent to 31.5. The stock suffered a two-day 8.8 percent post-earnings skid prior to today and was downgraded at to hold from buy at DB yesterday. Today’s call buyers are possibly looking for a rebound in the months ahead.

Cisco (NASDAQ:CSCO) loses 28 cents to $19.55 and is one of 21 Dow stocks holding losses in early trade Friday. Recent options trades on the networking giant include a Feb 19 – Feb 20 call spread, bought for 52 cents, 3700X. Looks like it has traded more than once and possibly a bet that shares will recapture $20 over the next three weeks. CSCO has tried and failed to penetrate that level multiple times during the past six trading days and, with the exception of a brief stint on Monday, has not traded north of $20 since gapping down on earnings on Feb 20, 2011. Earnings come into play again on February 8.

Bearish Flow

Lorillard (NYSE:LO), which saw increasing volume and higher implied volatility yesterday, is down another $3.75 to $107.63 on volume approaching 2 million shares, which is more than double the normal. The two-day 5.8 percent skid pushed shares of the cigarette maker below a 200-day moving average and has motivated a flurry of activity in the options on the stock. 14,000 puts and 2,700 calls traded in the name. The flow includes a Feb 85 - 100 put spread, bought for 85 cents, 500X. Mar 110 - 115 put spreads traded at $3.15, 1000X, and appears to be opening (seller?). Today's weakness in the stock might be in reaction to Altria's earnings miss. LO reports on Feb 9. Implied volatility is up another 11.5 percent to 32 and has surged 60 percent during the past two days.

Implied Volatility Mover

Frontier Communications (NYSE:FTR) tumbled to $3.81 early and is trading down 22 cents to $4.25 on volume of 23 million shares, which is almost 7X the typical volume. Options action in the Stamford, CT telcomm is picking up as well. 20,000 calls and 7,475 puts traded on the stock so far. Mar 4 call buyers are leading the flow. Recent trades include a multi-exchange sweep of 2500 for 40 cents when the market was 30 to 40 cents. A 1,177-lot traded for 32.5 cents thirty minutes ago on ISE and was an opening buyer, according to ISEE data. 12,331 Mar 4 calls now traded on the stock against 220 in open interest. Aug 4 puts, Mar 5 calls, and May 5 calls are seeing interest as well and, as shares touch 52week lows Friday, implied volatility in FTR options is up 39.5 to 61 and new 52-week highs. It’s not clear what’s driving the volatile action in this stock today, as there are no obvious headlines. Earnings expected about a month from now.

Unusual Volume Movers

Bearish activity detected in Cavium (NASDAQ:CAVM), with 5063 puts trading, or 5x the recent average daily put volume in the name.

Bullish flow detected in Renren (NYSE:RENN), with 11407 calls trading, or 3x the recent average daily call volume in the name.

Bullish flow detected in Quicksilver Resources (NYSE:KWK), with 19245 calls trading, or 27x the recent average daily call volume in the name.

Meanwhile, unusually high options volume is being seen in Ford Motor (NYSE:F), Juniper Networks (NYSE:JNPR), and Baidu (NASDAQ:BIDU)