Friday’s Bullish Trading
DISH Networks (DISH) had a second day of active trading. November 35 calls were the most actives in the stock Thursday. 9,850 traded against 7,829 in open interest. October 35, October 36, and January 34 calls were actively traded as well. Shares were off 27 cents to $35.47 Friday and the action continues. About 19,000 calls and 2,750 puts traded on DISH, a ratio of nearly seven-to-one. The flow was scattered across a variety of different expiration months and strike prices. January 36, November 35 and October 35 calls were the most actives. The New York Post had a story about DISH today suggesting a settlement with Cablevisions (CVC) might be near. The heightened activity in calls on the stock might reflect hopes that a settlement would bode well for Dish and its shareholders.
Bullish trading was also seen in Encana (ECA), Riverbed Technology (RVBD), and Ford (F).
Friday’s Bearish Trading
Google (GOOG) was under fire for a second day. Shares of the Internet search giant tumbled 8 percent Thursday after the company’s earnings report was released earlier than anticipated and investors frowned on the results. The stock was steady in early trading Friday, near $700, despite analyst downgrades. Then, sellers surfaced mid-morning and the stock was back under pressure. GOOG lost $13.21 to $681.70 on heavy volume of 11.5 million shares. 175,000 calls and 272,000 puts traded on the stock as well. October 680 puts, which expired Friday slightly out of the money, were the most actives in Google options. 27,610 traded. Beyond the front-month options, the most actives were the November 700 and 660 puts.
Bearish trading was also seen in Navistar (NAV), ON Semiconductor (ONNN), and NASDAQ OMX (NDAQ).
Index Recap
CBOE Volatility Index (.VIX) was up Friday. The market’s “fear gauge” rose 2.03 points to 17.06 and its best levels since early-September, as the S&P 500 (.SPX) lost 24.15 to 1433.19. Disappointing earnings, worries about the global economy, and maybe the options expiration seemed to affect market volatility Friday. The S&P suffered its third largest point drop of 2012 and its biggest loss in almost four months. Trading activity was relatively busy in both the SPX and VIX pits due to the volatility. 636,000 puts and 315,000 calls traded on the SPX. 308,000 calls and 186,000 puts traded on the volatility index.
Analyzing the ETF Market
We noted interesting options activity in the Oil Service Holders (OIH) in Thursday’s closing report. Shares were up 20 cents to $41.31 and some investors were apparently looking for a drop in the ETF before the weekend. Morning trades on OIH included several lots of October 41 puts, which are 31 cents out-of-the-money and expire after Friday. More than 27,000 contracts traded against 14,072 in open interest and the puts traded at an average of 25.8 cents Thursday. Like the broader market, many of the oil service names slipped Friday and OIH fell 76 cents to $40.79. The Oct 41 put traded on the stock again late in the day Friday, including a 9275-contract block for 25 cents per contract. Yet, the day before, the contract was trading for more than 25 cents per contract. One might expect the puts to increase in value if the underlying shares fall. In this case, although OIH fell, the decline in the OIH was not enough to offset the negative impact from time decay. All options lose value over time and the rate of time decay increases as expiration approaches. An option can lose value very rapidly on the final day of trading before the expiration.
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