Options Flow Summary: General Sentiment, Nabors Industries Ltd (NBR) & Starbucks Corp (SBUX)
General Sentiment
Todayís activity serves as a reminder that increased market volatility can mean extreme moves up as well as down. The broad averages are up nearly 3% today, and Nasdaq 100 index is up more than 4%. Investors focused on positive comments from a few financials that appear to have avoided the widespread sub-prime losses.
Total option volume on the day is a strong 17.8 million contracts. The CBOE Vix sentiment indicator collapsed from a jittery 31.09 close yesterday to a more ërelaxedí 24.10 as traders exhibit reduced concern about a major near-term correction.
Nabors Industries Ltd (NBR)
Option volume in this drilling contractor normally averages 6,700 contracts. While overall market volume was strong today, NBR option volume was a standout at 6 times normal with 45,000 contracts changing hands with 88% of this activity in the calls.
We saw very aggressive buyers of the December 30 calls, bidding implied volatilities from the 36% range to 48%. These buyers used multi-market sweep algorithms to pay $.55 for more than 3,000 contracts with more than 11,000 trading on the day. November 30 calls also saw buyers paying a nickel to $.20 despite the fact that these options expire in 3 days and currently stand more than $2 out of the money. While we await tomorrowís open interest data to confirm the opening nature of the positions, this flow shows active positioning to gain from any upside short-term event.
Starbucks Corp (SBUX)
Earnings are expected after the close Thursday, and SBUX options traded actively today at twice their recent volume levels. The stock was up 3.63% to $23.98 and characterized by a bullish directional bias. 35% of the 51,000 contracts traded involved offer side call trades and bid side put trades.
Implied volatility differential between November options (70% IV) that include earnings and December options (35% IV) suggests about $1 move is anticipated on the news, with todayís volume suggesting a greater focus on the 25 strike.
Posted By: Trade Alert
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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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