Options Flow Summary: General Sentiment, LVLT, XMSR & SIRI
General Sentiment
Wednesday was a relatively quiet trading day, with most equity measures little changed and the CBOE VIX down slightly to 24.96. Closing volume stats show 4.3 million puts and 5.1 million calls traded in relatively neutral two-way trading. Expectations are for a relatively quiet remainder of the week.
Level 3 Communications (LVLT)
The largest trade of the day involved a call spread on the all-electronic ISE. At 3:40 pm, 82,000 March 08 call spreads traded for a net debit of $0.55 to the buyer.
Open interest shows that this trade will create a new position. However, the current 1.1 million contracts of open interest suggests that this trade originated with an existing position-holder who was looking to adjust his exposure to the current stock level.
XM Satellite Radio (XMSR) and Sirius Satellite (SIRI)
The pending deal between these firms would give XMSR shareholders 4.6 shares of SIRI for ever share of XMSR. Both companies saw significant options activity today on reports of a possible DOJ ruling within 30-60 days.
XMSR closed at 14.22 and traded 6 times its normal volume level. 82,000 contracts changed hands with consistent premium sellers causing implied volatilities to drop nearly 10 points.
SIRI was up 3.32% to $3.42 today. It also saw close to 82,000 contracts change hands with sellers hitting Jan 08 4 and 5 strike calls. Overall, the deal spread narrowed by nearly a dime to $1.50. This activity suggests that traders believe the general implied volatility will decrease following approval of the deal.
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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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