Options Flow Summary: General Sentiment, MO & MIR
General Sentiment
Stocks have rallied following yesterdayís severe sell-off, with most broad indexes up nearly 1%. While we saw the CBOE VIX closing at its high of 26.30 yesterday, todayís recovery and looming long-weekend have option buyers lowering bids. Consequently, the VIX is down to 24.58.
Option volume is moderate, with just under 5 million contracts traded by 1pm. Calls outnumber puts by a small margin resulting in a slightly bullish bias.
Altria (MO)
As was widely expected, Altria confirmed spinnoff plans for the tobacco unit. Not surprisingly, MO options are among the most active single-stock today. 77,000 contracts, or triple the daily average volume, have traded by midday. Much of the flow appears to be the unwinding of positions opened over the past week in anticipation of this news.
Over the past week more than 80,000 Sep 70 calls have traded with buyers leading the flow and ending in an open interest of 144,803 contracts which is a significant position. While the stock has climbed from $69 to briefly touch $71 over the period, todayís reaction has been minimal. The volume of 17,000 Sep 70 and 13,000 Sep 75 calls appears to be sellers closing some of the positions for a loss.
Mirant Corp (MIR)
There has been active trading in Mirant options today on the CBOE. 5000 Sept 42.5 calls were bought for $0.25. This was followed by 6,000 Sept 37.5 straddles with the majority crossed by a large institutional dealer. The calendar shows no events before expiry, and leading into a long weekend, it is likely that these trades close short premium positions opened over recent months.
MIR has traded in bursts this year. While its recent average daily volume is 18,000 contracts, the name traded more than 100,000 contracts on July 11 and August 3 as large institutions adjusted exposure to the stock.
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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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