Options Flow Summary: General Sentiment, LVLT & Unusual Options Activity
General Sentiment
It's an up-day for most averages. However, the CBOE VIX continues to slide, now near 24.54, as hopes for a fed cut and energy-related gains outshine last month's credit crisis. Overall volume is light, with just under 9 million contracts changing hands. Calls have outpaced puts 4.6 million vs 3.9 million.
Level 3 Communications (LVLT)
This is LVLT's second day leading the market with yet another massive call spread. The March 5 ñ 7.5 call spread traded for $.55 77,500 times on the ISE. This same spread traded for the same price 82,000 times yesterday to create new open interest.
Despite all of the options volume, the stock remains relatively flat at $4.57. Stock volume has picked up in conjunction with the options volume to trade nearly 65 million shares today. That is double the recent average daily volume.
With large collar positions in Jan 08 and Jan 09 7.5 calls and 5 Puts, the buyer of this spread may be motivated to cover his short-gamma risk at the current at-the-money strike. However, the seller is content to take $1.95 million maximum risk on shorting the spread in return for the proceeds of $4.26 million.
Unusual Option Volume
Some traders prepare for impending movement based on the ratio of options volume to the recent average level. Several pharmaceutical names have seen unusual call volume today, with sellers of calls in ISIS and ASPV along with a roll of short calls in ARXT.
SYMBOL ISIS ARXT ASPV
LAST 13.32 (+4.39%) 38.45 (-1.38%) 18.50 (-0.75%)
VOLUME 5463 1916 1261
MULTIPLE 3X 3X 3X
ADV 1511 529 410
PUTS 900 90 195
CALLS 4563 1826 1066
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About Henry Schwartz
Henry Schwartz has traded derivatives on US and European exchanges for nearly 20 years. His experience includes market-making and institutional trading at the Hull Group, Salomon Brothers, Bear Stearns and most recently Banc of America Securities, where he led the electronic market-making project coincident with the launch of the ISE. His current work involves real-time stream analysis of options market activity for a number of leading institutional sell-side firms.
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