Friday Options Recap (03/04/11)


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Stocks are broadly lower after a rally in crude oil prices overshadowed better-than-expected economic data. The Dow Jones Industrial Average opened steady Friday after a 191-point rally Thursday and after the Labor Department said the US economy added 192,000 jobs in February, which was 7,000 better-than-expected. February numbers were also revised higher and the unemployment rate fell to 8.9 percent. A separate report released later showed January Factory Orders up 3.1 percent. Economists were looking for an increase of 2.1 percent. Yet, a weak rally attempt was thwarted in morning trading after crude oil rose to its best levels since September 2008 amid increasing violence parts of North Africa and the Middle East. Heading into the weekend, crude oil is up $2.46 to $104.37. The fear is from the global economic impact from higher energy prices and therefore the earnings risk to corporate America. The Dow Jones Industrial Average is down 140 points. The tech-heavy NASDAQ lost 21. With 45 minutes left to trade, the CBOE Volatility Index (.VIX) is up 1.07 to 19.67. Trading in the options market is slowing ahead of the weekend. 7.7 million calls and 6.4 million puts traded so far.

Bullish Flow
TIVO (TIVO) trades down a nickel to $9.40 and 40000 calls traded in the name so far. A lot of the action is being driven by May call spreads. The May 10 – 15 call spread trades at $1.05, 2000X and 1324X. The May 11 – 17.5 call spread trades at $1.10, 4000X and $1.175, 1800X. The spreads look buyer-initiated and to reflect expectations for a substantial move higher in TIVO shares from now through May.

Bearish Flow
Goldman Sachs (GS) is trading down $3.67 to $160.82 and implied volatility in GS options is up after BofA (BAC) Merrill (MNL) lowered the stock [and Citi (C)] to Neutral from Buy. 27000 calls and 31000 puts now traded in Goldman. The top trade is a block of 1000 April 160 puts at the $4.70 asking price. The next biggest trades look like a Jul 140 – 190 bullish risk-reversal at $1.95, 400X. March 170 calls and the expiring Weekly 160 puts are the most actives. Implied volatility is up 9 percent to 24.5, compared to a 52-week high and low of 54 and 20.5.

Implied volatility Mover
Central European Distribution (CEDC), which fell 37.3 percent on earnings news Wednesday, is down another $1.45 to $12.49 today. Meanwhile, puts on the Bala Cynwyd, PA alcohol beverage importer/exporter are busy for a second day. Yesterday’s action was driven by a Sep 10 – 12.5 (2X1) put ratio backspread (bought 2 and sold 1) at a nickel, 5000X, which appears to be a type of disaster insurance. Today’s volume includes 1800 calls and 18000 puts. Sep 10 put are again the most actives. Mar 10, Mar 12.5, Apr 12.5 and Sep 5 puts are seeing interest as well. Implied volatility is up 30 percent to 76 after Credit Suisse cut the stock to Underperform from Outperform.

Unusual Volume Movers
Bullish flow detected in Fuqi International (FUQI), with 5067 calls trading, or 10x the recent avg daily call volume in the name.

Bullish flow detected in Endeavour Silver (EXK), with 3563 calls trading, or 2x the recent avg daily call volume in the name.

Bullish flow detected in Southwest Airlines Co (LUV) with 8311 calls trading, or 5x the recent avg daily call volume in the name.

Increasing volume is also being seen in Staples (SPLS), Human Genome Sciences (HGSI), and Marvell Tech (MRVL)
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