Heavy betting on Visa, churn in Yahoo, and perhaps some misguided faith in oil majors ... that's the trend one expert is seeing in options.
With Visa scheduled to report after the U.S. markets close Monday, trade in the company's options was very heavy, Rebecca Darst of Interactive Brokers said on CNBC Monday.
"Visa was the topic of huge speculative interest among options traders on Friday...implied volatility was from 20 percent to around 55 percent -- that's the highest reading we have on record for fledgling options, with about three times as many calls moving as puts on Friday, clearly it would seem that option activity would favor the upside," said Darst. "The question in the case of Visa is, how high can it go?"
Demand was heavy in calls, the right to buy a stock at a specific price in the future, she said. (See her full comments about May 90 calls in Visa in the accompanying video).
Over the weekend Microsoft's offer to buy Yahoo expired, leading to speculation Monday about the prospect of Microsoft turning hostile. Darst said there was "a wave of defensiveness in Yahoo options late Friday."
There was a lot of action in puts, she said, which give traders the right to sell a stock for a certain price in the future.
"We saw implied volatility up more than 30 percent. That was up more than almost any ticker in terms of implied volatility on our platform," she said. "We also saw huge interest in out-of-the-money puts in the May contract. It would seem to be defensive plays, maybe cheap insurance, maybe people playing against that...what you want to take a look at, in the case of a company like Yahoo, is that when implied volatility rises on its options, check out and see if the traders are buying volatility or selling it. What we saw early in the session on Friday was a lot of traders selling volatility, but then perhaps having a change of heart later in the session. That could also just be a lot of two-way traffic, a lot of churn in the market."
Oil Majors ...
Darst said : "In the case of Exxon and Chevron , both of whom are reporting earnings this week, we're seeing options are pricing in about a 5 to 6 percent price move on back of the earnings, I mean, these are expensive stocks, so that's not a huge rebound. There's kind of widespread expectation that these companies are going to hit the ball out of the park just because oil prices are high, but what observers of the market may want to keep in mind is that these guys are net consumers of oil, so they're going to be impacted by high fuel prices like US drivers are going to be."