Options Order Flow Review: The CBOE VIX Drops, Yahoo (YHOO) Posts Record Volume & Microsoft (MSFT) Explodes
Options Order Flow Review For Friday, October 26, 2007
General Sentiment & CBOE VIX
Friday was another active day in the options market. 13.3 million contracts changed hands with the US markets getting a boost from MSFT and Countrywide earnings along with Merrill Lynch merger speculation.
The broad averages were up more than 2% on the day and the CBOE VIX closed below 20 for the first time in more than a week. Option flow was generally bullish, with nearly twice as many single-stock calls trading than puts.
Yahoo Inc (YHOO)
A massive trade took place in Yahoo options on Friday. A buyer paid $.57 for 118,100 YHOO Jan-08 40 calls on the AMEX just after noon. This trade was followed by an additional 50,000 contracts for $.73 two hours later.
Total YHOO volume on the day was an impressive 185,811 contracts. The driver for much of this activity was an upward revision of the analyst price targets for YHOO. This upward revision was based primarily on Yahooís significant ownership stake in Alibaba. In terms of overall volume, this trade ranks as one of the ten largest non-dividend-related trades of the year.
Microsoft Corp (MSFT)
Better-than-expected earnings led Microsoft shares up 9.5% to $35.03 on Friday. That price level has not been seen in more than 5 years. As one might expect, the good earnings news prompted an explosion in MSFT options volume.
824,000 MSFT contracts traded on Friday. That is more than 8 times the average daily volume level. Trading activity was the most intense on the November 32.5 strike, where 81,733 calls changed hands. Sellers seemed to be leading the options flow.
Notably, this flow appears to be largely retail-centered with no single print greater than 2000 contracts. A glance at Thursday's option flow shows that the November 32.5 calls were also very active during that session. There were consistent sellers collecting premium in the $.70 range on Thursday. Open interest also grew by more than 45,000 contracts.
While some of these sellers may have been overwriting long stock positions, outright naked shorts took a hit of more than $2 per contract on Friday.
Posted By: Trade Alert
"
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.
View Henry Schwartz's post archive >
