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Volume 'Explodes' On Jefferies Options Contracts

Lori Spechler
Monday, 21 Nov 2011 | 4:54 PM ET

Despite continued market rumors and innuendo, and following an open letterto investors from the Jefferies Group Chairman and CEO, the implied volatility of options on shares of JEF is lower Monday, while the cost to borrow shares remains slightly elevated.

After closing at 211 percent for December at the money options on November 18, option volatility Monday is a relatively tame 180 percent. There are currently no weekly options on JEF.

“There’s been a lot of speculation, volatility has exploded,” says Steve Sosnick Timber Hill Equity Risk Manager. And so has the volume, nearly 40,000 contracts traded today alone in December options which Sosnick characterized as “huge” for a stock like Jefferies.

“The volume should be up because the company is doing all it can to dispel the sentiment in the marketplace but, the rumor persists as long as the open interest exists,” he says.

December $6 puts is the strike with the biggest open interest and was also one of the most actively traded contracts today.

But, it’s the activity in the calls that CNBC Contributor JJ Kinahan, TD Ameritrade Chief Derivatives Strategist, says is the most interesting. After the company made public its comments today, Kinahan noted a “much better balance of trades” between puts and calls including action at the $11 and $12 call strikes. “Last week, the world was falling apart,” he says. “This may not be a great situation but the pure panic seems to have subsided for now”. December $12 calls were the most actively traded contract, settling at $0.35 bid and $0.40 offered.

And the cost of borrowing shares of JEF to short has been creeping higher. A source tells CNBC that it now costs about 3.5 percent on an annualized basis versus zero about two weeks ago.

Questions? Comments? Email us at marketinsider@cnbc.com

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