Mid-day Flow Summary: General Sentiment, SBAC & Pin Candidates

Posted August 15th, 2007 by Henry Schwartz in Trading & Analysis

General Sentiment
It has been a see-saw market today. It started out with a 1% decline in broad averages. That was followed by a quick rally and, within 15 minutes, the market returned to unchanged. The CBOE VIX is slightly higher to 28.05. This suggests a growing consensus that implied volatilities will be holding at this range for the foreseeable future.

Contract volume at noon totals just over 7 million contracts. This busy pace is expected to continue through Fridayís expiration. 4 million puts and 3.2 million calls have changed hands so far today, with option buyers driving most of the activity.

ADVERTISEMENT

Break Through the Trading Frustration
Get the Investor's Guide to System Trading,
courtesy of Daniels Trading. Focus on
diversification, system selection and more.
Get the Guide.

SBA Communications (SBAC)
A large spread traded in this wireless tower company this morning on the PHLX. The transaction was crossed between two broker-dealer firms. In this trade, the December 25-30 put spread was crossed 30,000 times for $1.95.

With only 34,000 contracts of open interest, and a quiet average daily volume of just over 1000 contracts, this trade provides a substantial bet on SBAC stock for the next several months. It should be noted that these months include earnings in early November. SBAC missed its earnings earlier this month and has been volatile ever since, with highs near 36 and lows at the current level near $30.40

This trade provides the seller with $5.85 million worth of premium in exchange for risk of more than $9 million. Of note is the relative illiquidity of the stock, which averages only 1.7 million shares per day. As expiration approaches, this position could result in 3 million shares of stock to deliver and hedge. In such an illiquid name, such a large amount of stock could have significant impact.

Pin Candidates

Symbol	Expiry	Strike	Put/Call	Spot	Distance	OI
DNDN	Aug7	7.5	Calls	7.42	0.08	160,049
DNDN	Aug7	7.5	Puts	7.42	0.08	110,461
MRVL	Aug7	17.5	Calls	17.38	0.12	74,638
MRVL	Aug7	17.5	Puts	17.38	0.12	66,963
GE	Aug7	37.5	Puts	37.53	0.03	54,863
CVS	Aug7	37.5	Puts	37.35	0.15	41,283
CVS	Aug7	37.5	Calls	37.35	0.15	40,069
SWKS	Aug7	7.5	Calls	7.44	0.06	29,960
UPS	Aug7	75	Calls	74.79	0.21	20,874
UPS	Aug7	75	Puts	74.79	0.21	19,411

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 >