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Friday Options Recap
by: Frederic Ruffy May 07, 2010 | about: ADM / AMR / CX / QQQQ / SFI / SPY / UUP / VXX / XHB / XLF



Sentiment

The major averages are suffering a day of losses following mixed news on the jobs front and amid persistent worries about the European debt crisis. The table was set for a modest bounce early Friday after the Labor Department said the US economy added 290K jobs last month, the most since March 2006 and much better than the 187K increase that economists expected. However, the early advance didn't last.

Not only is uncertainty about Europe's debt problems weighing on sentiment, fear has been elevated another notch after trading activity turned to chaos late Thursday. While the root of the problem is being investigated, the event, which was followed by a nearly 1,000 point drop in the Dow Jones Industrial Average, has clearly undermined investor confidence during already precarious times. The Dow Jones Industrial Average is down another 177 points heading into the final hour. The NASDAQ lost 64. The CBOE Volatility Index (.VIX) rallied 6.78 to 39.80. Trading in the options market is very active and defensive, with 9.9 million calls and 12.4 million puts traded so far.
Bullish Flow

AMR (AMR) is seeing action in August calls Friday. Shares are up 1 cent to $6.76 and it appears that 74 cents was paid for the Aug 7 – 9 call spread, 5300X. August 7 calls look opening. The spread might be a roll down in strikes after the 34 percent decline in shares since March 11.

Cemex (CX) is down 17 cents to $10.36 and one player sells 24K May 10 puts at 36 cents each. It likely offsets a position opened on April 22 (see CX 4/22 color) when 25K were bought at 27 cents. Shares are down 30 cents since that time and, while time decay has been a factor, this strategist has benefited from falling shares and an uptick in implied volatility, from about 43 to 66 percent since April 20.
Bearish Flow

Archer Daniels Midland (ADM) puts are busy and implied volatility higher, just a few days after shares fell 5.4 percent on earnings news. Shares are up 29 cents to $25.99 today, but down nearly 7 percent on the week. About 18,000 puts have traded, or 10X the expected and 13X the number of call options. June 27 puts are the most actives. 7180 traded (98 percent Ask) vs. 10.4K in open interest. Meanwhile, looks like opening trades in the June 22.5, June 24, and June 26 puts. Some of the activity appears to be spread trades. For example, 90 cents collected on the June 22.5 – 26 put spread, 900X on AMEX. So, the flow is not entirely bearish. Nevertheless, implied volatility is up 9 percent to 35, as investors appear to be bracing for higher volatility in ADM between now and the June expiration.
Implied Volatility Movers

iStar Financial (SFI) is down 80 cents to $6.20 and options volume is 2X the average daily, driven by premium selling in June and July call options. The top trade is 4500 Jun 7.5s on the 30 cent bid. 14K contracts now traded vs. 22.8K in open interest. Some of the action might be part of ratio spreads in the June 5 – 7.5s. For example, it appears that the 1X2 traded 2000X at 75 cents on PHLX and is possibly a liquidating trade. 3335 Jun 5 calls traded vs. 6290 in open interest. 21K calls traded total and implied volatility is down about 13 percent to 111.

Unusual Volume Movers

SPYders (SPY) options volume is running 2X the usual, with 4 million contracts traded and put activity representing about 67 percent of the activity.

Powershares QQQ (QQQQ) options activity is running 2X the usual, with 1.3 mln contracts traded and put volume representing 65 percent of the volume.

Select Sector Financials (XLF) options volume is running 2X the usual, with 933,000 traded and put volume representing 74 percent of the activity.

Unusual volume is also being seen in PowerShares Bullish Dollar Fund (UUP), SPDR Homebuilders (XHB), and the NASDAQ 100 Index (.NDX)
About the author: Frederic Ruffy