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Options Reset

|Includes: QQQ, SPDR S&P 500 Trust ETF (SPY), UUP, WMB, XLF

The options market is relatively quiet today with many of the largest transactions closing existing positions as traders reassess the situation and reset their positions following yesterday’s tumble.  Heading into the noon hour option volume is running about 15% the 20-day daily average.  

Interesting statistic from Trade Alert highlights the growing popularity and importance of ETFs as both an investment vehicle and hedging tool.  Yesterday the index option products such as the SPX and OEX traded a total of 900,000 contracts which was just 78% of the six month daily average.  Meanwhile options ETF products, such as the SPY and QQQQ and XLF, traded a total of 4.9 million contracts which was 120% of their six month daily average.  It was not too long ago that institutional investors and hedge funds automatically turned to the index products which have a larger contract size to hedge portfolios, especially when there was a rush to buy put protection.  But this data suggests they are increasingly turning to the ETFs which can offer sector slices and increasingly liquid markets. 

One of the largest trades so far today was in the Powershares Dollar (NYSEARCA:UUP) which saw the sale of 70,000 of the March $23 calls.  This was most likely a liquidation of a long position as someone took profits after the ETF has gained some 2% in the three sessions.     

Williams (NYSE:WMB) are still sliding, down another 40c to $20.08 and notable trade is the May/Aug $20 call spread which traded 14,000x done for a 55c net debit.   This would appear to be roll, sold to close May bought to open Aug.  to extend the time frame.  The May position was initiated just this past Tues. 2/2 when the stock was trading around $21.80 a share and the May calls were around $2.90 a contract.  So the player seems to be taking a loss at the moment but staying in the game in this name.

Disclosure: None