Options Flow Summary: General Sentiment, MU & WFC
General Sentiment
It has been another relatively calm and positive day in the options markets. The CBOE VIX is down to 17.29 and overall options volume is on pace for a typical 10 million contract day. At midafternoon, calls outnumber puts 4 to 3. The general sentiment is cautious, with some speculative activity in technology issues and generalized hedging in large cap names.
Micron Technology (MU)
There has been interesting flow in MU today ahead of next week's earnings. We have seen triple the average daily volume, with flow heavily concentrated in call buying. The stock is trading up 6.5% to $11.45 and more than 36,000 calls have traded by midafternoon versus just 2,000 puts. Buyers dominate the November 11 strike calls, paying from $.80 to $1. More than 22,000 contracts have changed hands as implied volatility has surged from 38% to nearly 44%.
Of note is the block-nature of the trading, which included several 5,000 lot purchases. This shows that this buyer is most likely a large customer or proprietary trading firm interested in potential upside reaction to earnings.
Wells Fargo and Company (WFC)
Wells Fargo is trading nearly double its average daily options volume with put buyers focused on October and November 35 strikes. Close to 15,000 October 35 puts have traded for prices near $.65. These trades have featured the use of several aggressive sweep orders to maximize the available liquidity.
Earnings are expected one day ahead of expiration for these puts. This suggests the potential for higher volatility if the stock approaches the 35 strike near expiration.
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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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