Friday Options Recap

Sentiment

Stocks are broadly higher late Friday. After a three-day 322-point slide, the Dow Jones Industrial Average opened with modest gains on decreasing concerns about the recent spike in crude oil prices. After rallying 8 percent in a week, crude is up 84 cents to $98.12 late Friday and 5.1 percent off the highs seen Thursday morning. Meanwhile, the day’s economic news was mixed. While fourth quarter GDP was a weaker than expected 2.8 percent annual rate (consensus was 3.3 percent), the University of Michigan Consumer Sentiment Index hit a three-year high of 77.5 (vs. 75.1 consensus). Still, the data didn’t matter too much, as the focus is on overseas events. The Dow Jones Industrial Average is up 64 points. The tech-heavy Nasdaq has added 41.6. Trading in the options market is on the light side, with 7.6 million calls and 6.1 million puts traded so far.

Bullish Flow

CBOE Holdings (CBOE) is trading up $1.83 to $29.35 and call activity is heating up in the owner of the Chicago Board Options Exchange [CBOE] Friday. March 30 calls are the most actives. 2,845 traded (73 percent Ask) vs. 2,746 in open interest. Similar action is being seen in the Mar 28, 29 and 32 calls. Seems that buyers are dominating the action. 12000 calls traded so far. Implied volatility is up 8 percent to 41. CBOE rallied around earnings earlier this month and also saw a lift on takeover speculation last week after Deutsche Boerse made a move to acquire NYSE-Euronext. The theory goes that Nasdaq might now seek to increase its market share by purchasing CBOE, operator of the oldest and one of the largest exchange.

The top equity options trade so far today is in Ford (F). It’s a block of 11,000 Jun 20 calls at 11 cents per contract. The trade coincided with a 5,500-contract block of Jun 17 calls at 48 cents. Both traded on the PHLX and looks like a (1X2) at 26 cents. Separately, a March 15 – 16 (1X2) call ratio spread traded at 17 cents, 3500X on ISE, where data indicate the March 15 leg was bought-to-open. Both spreads appear to be bullish plays on the automaker, as the stock tries to stabilize from 21.8 percent swoon suffered since earnings were reported on 1/28. Ford is up 22 cents to $14.92 today.

Bearish Flow

SPDR Financials (XLF) adds 24 cents to $16.78 and one investor sells 50000 Mar 15 puts at a nickel and buys 25000 June 15 puts at 36 cents. This 2X1 time spread, for a net debit of 26 cents, might be rolling out of a hedge from March to a position half the size in June.

Implied Volatility Mover

CBOE Volatility Index (.VIX) is down 2.24 to 19.08, but thanks to the big gap Tuesday morning, is up 2.51 points on the week. 175000 calls and 117000 puts traded on the volatility index By way of comparison, 425000 calls and 285000 puts traded in the VIX pit Wednesday when it rallied to 23.22. VIX is now nearly 18 percent Wednesday's peak levels. Still, at 19.08, the index seems to be price in a fare amount of macro-economic risk. The 60-day statistical volatility of the S&P is just 10.6 percent. The fourth quarter earnings have now largely been discounted and the S&P 500 trades at 13.5X forward earnings. Interest rates remain low and economic data is taking a backseat to events overseas. The main concern appears to be earnings risk from global macroeconomic uncertainties -- China, Europe Debt Crisis and now spiking crude oil prices -- and this might explain why VIX is 80 percent higher than SPX 60-day actual volatility.

Unusual Volume Movers

Bullish flow detected in National Semiconductor (NSM), with 8248 calls trading, or 15x the recent avg daily call volume in the name.

Bullish flow detected in Range Resources (RRC), with 19823 calls trading, or 7x the recent avg daily call volume in the name.

Bullish flow detected in Stone Energy (SGY), with 2618 calls trading, or 3x the recent avg daily call volume in the name.

Increasing volume is also being seen in Sara Lee (SLE), Petrohawk (HK), and Potash (POT).