Options Flow Summary: General Sentiment, AKS & S
General Sentiment
The market is seeing a broad-based rally on expectations that the Fed may have further cuts in store. At mid-afternoon, most indexes are up well over 1% and the options volume is in-line with recent levels. The CBOE VIX is down more than Ω point to 17.42 and call trading leads puts by nearly 1 million contracts.
AK Steel (AKS)
The largest transaction today involves a spread in AKS puts on the PHLX. In this trade an institutional client collected $1.65 to sell the November 40 puts and buy October 35 puts. This was a delta-neutral trade tied to stock.
A similar size transaction was seen on the AMEX several minutes. This second trade boosted the overall total to 50,000 spreads. AKS is currently trading at $44.30 and this trade looks like a roll "out and in" of 50,000 short October contracts. The net premium to the seller is $8.25 million and the size of the trade suggests a large account that is comfortable with the position's significant downside risk.
Sprint (S)
A large multi-market sweep trade occurred in Sprint puts this afternoon. An aggressive buyer lifted 10,000 of the January 08 15 strike puts for $.15. The stock immediately rallied from $19.00 to $19.09, an interesting reaction to this downside hedge.
As Sprint has been mentioned as a takeover target in the past, market participants appear to be viewing this trade as a hedge for a substantial long equity position. As a result, they view the trade as having an upside impact rather than a downside impact.
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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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