Options Flow Summary: General Sentiment & Alcoa (AA)
General Sentiment
There is a bit of pessimism surfacing in the US markets today as broad averages retreat from yesterdayís record highs. Benchmark S&P 500 is lower by .6%. The US options markets are on pace for a 10 million contract day which is in line with recent levels. In addition, calls are slightly outpacing puts.
However, the general flow direction suggests defensive positioning as traders lock in gains and place downside hedges for the near-term. As normally seen on a down-day, the CBOE VIX sentiment indicator is higher, while still far below August peaks. It is currently up nearly a point to 17.09.
Alcoa (AA)
3rd quarter earnings season is off to a thud with AA missing estimates and selling off 3% to $38.53 with very active options trading. October 40 calls are the focus today, with more than 20,000 on the tape and sellers leading the flow. Yesterdayís activity in AA included heavy buying at the strike, as more than 25,000 calls traded at prices up to $1.30 and open interest grew to a significant 73,083 contracts.
Today, traders appear to be closing these calls out at a loss, recouping $.40 to $.50 as they adjust their books for longer time horizons. Of note is that longer-term activity suggests a view for continued upside (and continued takeover chatter), as January-08 37.5 and 40 strike calls are trading actively.
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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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