Mid-day Flow Summary: General Sentiment, Freddie Mac (FRE) & Quest Communications (Q)
General Sentiment
An early bounce following yesterdayís sell-off has started to fade. The broad averages are up nearly Ω% at mid-day but they are still off from their early highs.
As some traders look to an early exit for the holiday, options activity continues to be strong. Total volume appears to be on target for 14 million contracts today. Overall sentiment appears relatively neutral, with calls outpacing puts by a slender margin. Out-of-the-money calls are seeing the most activity this session.
Freddie Mac (FRE)
This latest subprime casualty was annihilated today, plummeting 28% post-earnings to $26.87. Todayís option flow is mixed, including a large sale of 5,000 Jan-09 20 puts for $2.90 on the ISE just after the open.
This seller is collecting $1.45 million in premium and selling a 63% implied volatility. It appears this trader is betting that the worst is over for FRE. Alternatively, they could be looking for a government bailout to emerge before the stock drops another 20% to that strike.
The most active strike in FRE today is the Dec 30 call. There are nearly 5,300 contracts on the tape with bargain hunting buyers leading the flow.
Qwest Communications (Q)
We have seen unusual trading in this telecom name this morning, with a single large trade on the ISE dominating the activity. In this trade, the 10 strike calls of Jan 2010 traded 21,000 times in a trade tied to stock at $.48.
This long-term trade appears to be a simple buy-write, in which an institutional customer bought 630,000 shares of stock for $6.35. This trader then sold the calls and collected the premium in exchange for some upside risk.
The stock is down from the $10 highs set earlier this year. The customer seems to be comfortable holding the stock, which has recently received upgrades from a number of analysts.
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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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