Options Flow Summary: General Sentiment, AAPL & CFC
General Sentiment
There has been a continued market decline and implied volatility expansion this morning. The broad averages are down nearly 1.5%. The CBOE VIX is up more than 10% to 34.40, the highest level in 5 years. This illustrates an increased urgency in traders' expectations of market swings.
As one would expect with such price movement and tomorrowís expiration, options markets are very busy. More than 10 million contracts were traded by noon, or nearly double the recent average levels. The flow is dominated by put buyers, with 6 million puts on the tape versus 4 million call contracts.
AAPL
Apple stock is trading below $113.50. It is leading the single stock options space with 381,000 contracts traded. The activity is concentrated in August 115 and 120 strike calls. Close to 30,000 contracts of each have changed hands in a seller dominated flow. In addition, buyers are active in the August 110 puts with 17,000 traded.
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CFC
There has been plenty of negative press on the stock and the company has acknowledged a capital crisis. Not surprisingly, CFC is trading down 20% today to $16.35. The option volume is triple the normal level, with 273,000 contracts trading at a frantic pace. Implied volatilities in the September at the money options are well over 150%. This suggests that 10% daily moves are to be expected.
Despite the ëpanicí premium levels, the flow is buyer-dominated. This includes an interesting trade in October 27.5 calls on the amex, where a buyer paid $2.05 for 15,500 contracts. Breakeven for this trade by expiration is $29.55, or an 80% move up from here. This suggests that one trader believes the panic may be unwarranted.
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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.
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