Today’s tickers: VIX, GS, XLF, AAPL, XLI, CTXS, SQNM
VIX– A sharp market rebound was indicated pre-market by the performance of the S&P 500 index future courtesy of news of a $5billion seal of approval for Goldman Sachs by Berkshire Hathaway founded by billionaire investor Warren Buffett. However, proving that no one is bigger than the market (including Messrs Paulson and Bernanke), the broader market failed to cling on to its comfort blanket and a downward lurch in index values by noon saw the CBOE Volatility Index rise around 1% to 36.0. There was noteworthy call activity in the front October contract with around five times the call volume compared to put volume. Uncertainty surrounding the safe passage of the $700 billion rescue plan and heavy put interest on the industrial sector funds clearly outweighed the actions of the Sage of Omaha.
GS– Goldman Sachs shares maintained an early rally to stand proud by 3.8% at $129.85. However, options volume didn’t necessarily confirm the optimistic tone with activity favoring puts ever so slightly. Put activity was apparent from the 140 strike all the way down to the 95.0 strike in October while call trading was active between 125 to 150 strikes.
XLF– Financial Select Sector SPDR – Financial shares couldn’t make it to lunchtime in positive territory and despite an optimistic leap out of the starting gate stand 1% lower at $20.30. Options volumes are firm with 116,000 lots in play. Two calls have been traded in comparison to every put so far, but fading optimism following legendary investor Warren Buffett’s capital infusion into Goldman Sachs leaves the event stone cold. The October calls at the 21 and 23 strikes contain the bulk of the volume with the potential for a 10,000 lot bull call spread at play. Implied volatility for this financial basket stands at 72%.
AAPL– Apple Inc- A 2.1% increase in Apple’s share price to $129.40 has set off action on the contrarian put side of the fence today. 115,000 options contracts ensures that Apple options are toward the top of our highest volume market scanner today and the trading pattern indicates that October 130 and 135 puts are most actively traded accounting for one in five contracts at play today.
XLI– Industrial Select Sector SPDR –Shares representing the industrial sector have fallen today to $31.25, and we have picked up heavy action in put options on this fund. Investors have reached for near-term downside protection, which if accurate, precurse a further decline of 13.9% for the market. The trades stand out like the proverbial sore thumb today given that no existing open interest is in evidence at the October 27 and 28 strikes where investors today have paid wildly higher premiums for protection against a downturn in the fund’s share price. The activity shows some 21,500 lower strike puts coupled with activity of 27,500 puts at the 28 strike. In addition some 12,500 put contracts changed hands at the 30 strike. Implied options volatility of 43% compares to 33% historic volatility on the underlying share price whose 52-week low was formed at $30.50 just last week.
CTXS– Citrix Systems Inc –bucking the trend today with a 6.2% share price rise to $28.50 has encouraged good old-fashioned bullish positioning in its options. Investors have bought around 12,000 calls mainly in the October 30 and 35 strikes indicating the promise of further upside for the stock. Options implied volatility of 56% compares to 47.6% on the underlying shares while around 12% of overall open interest is at play. Typical average volume on these options is 3,900 lots.
SQNM– Sequenom Inc– Positive results for its Downs Syndrome testing drug has seen shares in this biomedical stock surge 26% to stand at $25.94. Its options are trading at four times the average pace as fresh interest has been placed in October 30 strike calls (3,300 lots) at a premium of 1.05. That would imply further near term upside potential of almost 20% within the course of the next three weeks. Additional fresh interest was to be found at the November 22.5 puts, although we can’t yet read the tape on whether this is selling pressure to allow for bull call positions or whether it’s someone placing protection against any price retracement on the stock.
