Thursday’s Bullish Trading
The financials led the Dow Jones Industrial Average higher Thursday. JP Morgan (JPM) rose 3.7 percent and was the second best gainer in the Dow. Bank of America (BAC) gained 43 cents, or 4.8 percent, to $9.40 and was the biggest winner in the industrial average. 325 million BofA shares traded and options volume on the bank surged to more than 900,000 contracts. 715,000 calls and 209,000 puts traded in the name. September 9 calls were the day’s most actively traded equity options contract. 117,000 contracts changed hands. Weekly 9, October 9, October 10 and November 10 calls on BAC saw active trading as well.
Bullish trading was also seen in CBS, Forest Oil (FST), and Whiting Petroleum (WLL).
Thursday’s Bearish Trading
Weatherford (WFT) added 49 cents to $13.38 Thursday and options volume on the oil driller was 3.5X the daily average, driven by September 13 straddle buying. In afternoon action, an investor bought 8,000 September 13 calls on WFT for 57 cents and bought 8,000 September 13 puts for 15 cents. The straddle, for 72 cents, traded on ISE and data from the exchange was reporting closing buyer. More than 38,000 of the Sep 13 calls and 24,400 Sep 13 puts traded on the day and the activity probably offsets straddles, which were apparently being sold-to-open in late-August. For example, on August 22, the same Sep 13 straddle traded at $1.08, 2500X. At that time, the stock was at $12.78 and 4.5 percent below current levels. Although the stock has moved, the straddle is being bought to close for less premium Thursday because time decay has helped the position. In addition, implied volatility apparently dropped from about 38 to 35, which helped the straddle write as well. The overall action isn’t really bearish or bullish trading, but by closing the straddle Thursday, the investor is possibly trying to avoid the risk of holding the short straddle ahead of next week’s expiration.
Bearish trading was also seen in Keycorp (KEY), DISH Network (DISH), and Chesapeake (CHK).
Index Recap
The S&P 500 (SPX) gained 23.43 points to 1,459.99 and rallied to its best levels since December 2007 Thursday. CBOE Volatility Index (VIX), which tracks the expected volatility priced into SPX options, lost 11.1 percent to 14.05 and finished near session lows. VIX hit a multi-year low of 13.3 in mid-August and then bounced higher through early-September. While the index is falling again, there’s an important difference between the options market in mid-September, compared to a month ago. Namely, we have volume! Nearly 23 million contracts traded across the options exchanges Thursday, which is significantly better than the average daily volume of 13.6 million contracts seen in August. It also represents the highest one day options volume since May 18.
Analyzing the ETF Market
Volume surged in the exchange-traded funds world Thursday. 1.5 billion shares traded on the SPDR 500 Trust (SPY), PowerShares QQQ (QQQ), and other ETFs, which is more than double the average daily volume seen during the past month. 10.6 billion contracts traded on the funds as well, which is also more than double the daily average, according to Trade Alert data. Of that, about 4.5 million contracts were in the SPDR 500 Trust, SPY. 630K contracts traded on the SPDR Gold Trust (GLD), 576K on the SPDR Financials (XLF), 562K on the iShares Emerging Markets Fund (EEM), 465K on the iShares Silver Fund (SLV), and 192K on the Market Vectors Gold Fund (GDX). There was a lot of interest in the financials and metals Thursday.
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