Options Flow Summary: General Sentiment, QCOM & GPS

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General Sentiment
The VIX is near 22.5 in a relatively quiet pre-Fed market that is still digesting  yesterdayís massive rally.  The broad indexes are up slightly and options volume is strong.  4 million equity option contracts were traded by noon today, and call-buyers are leading the flow.

Qualcomm Inc. (QCOM)
Qcom is the most active single name today, with more than 110,000 contracts changing hands by midday. The bulk of this volume came from a single 60,000 lot of September 45 calls. This trade was crossed for $.725 on the ISE at 11:15am. This trade appears to be closing a position that opened on July 23rd for $1.48.  At that time the stock was at $42.63, nearly $2 higher than the current levels.

While the price difference in the options translates to a loss of $4.53 million in premium, the realized and implied volatilities in QCOM are higher than July levels.  This results in a net profit if typical hedging activity took place.


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Gap Inc (GPS)
GPS is trading triple its average daily options volume with close to 15,000 options on the tape. The largest trade was a risk-reversal involving March 15 puts and 17.5 calls that went up 5,000 times. In spite of this activity, the stock is still trading around $15.95. The originator of this trade was apparently looking for a leveraged long position. As a result, he purchased these out-of-the money calls and sold the puts for a net debit of $.175.

While earnings are expected later this month, the initiator of this position appears to be looking for a more long-term recovery in the stock. This is understandable given GPS's recent highs above $19 in June.
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