The market this morning is tight both in range and volume. The shorts easily pushed back the opening advance, stopping the S&Ps at the mid 1220's. While it is quiet on this expiration Friday, make sure that you are managing your November options. The market could pick up some potential volatility, so clean up your position risk for November and get ready for next week's trade. The internals, meaning market breadth/VIX/Momentum, are still bullish. But what may be tempering this bid is the EU debt uncertainty and now we have the Congressional Super Committee meeting on the budget in Washington. We also have critical data out next week -- Housing Starts, GDP, Claims, that could potentially add some volatility, and may have traders pairing down size and risk especially in sectors like retail and housing. Levels to watch into the close are 1206 on the downside and 1223 on the upside. Off to speak at the Traders Expo in Las Vegas on volatility strategies. If you live in the Las Vegas area, tonight we have a big event at Bally's where Jim Rouzan and I will be going in-depth on the oX platform. See you After Hours.
Stocks are trading mixed on a relatively slow news day on options-expiration Friday. The only economic stat released today was the List of Leading Economic Indicators, which jumped .9 percent in October and .3 percent more-than-expected. Meanwhile, there were few headlines out of the Eurozone before the weekend. European equity markets traded mixed and the euro has recaptured .5 percent on the buck. Crude oil is getting some attention after giving back $1.58 to $97.35 and now well below the levels of more than $102 per barrel seen earlier this week. The tech-heavy NASDAQ is also lagging and down 10.7 points. However, trading has been orderly and without much volatility. The Dow Jones Industrial Average has added 20 points. CBOE Volatility Index (.VIX) gave back 1.26 to 33.25. Overall options volume is respectable due to the expiration, with 5.6 million calls and 5.2 million puts traded across the exchanges through 1pm ET.

Bullish Flow

SPDRGold Trust (GLD) adds 28 cents to $167.38 after the yellow metal edged up $2 to $1722 an ounce today. GLD has been under pressure over the past few weeks along with gold prices and is down 4.3 percent since November 7. One player in the options market seems to be looking for a rebound through June 2012 and bought a Jun 220 - 250 call spread on the ETF for $1.79, 21000X. 21,000 GLD June 220 calls were bought for $3.20 while 21,000 June 250 calls sold at $1.41. The spread is bullish with a maximum potential payoff if shares rally to more than $250 through the June 2012 expiration, which represents a 49.5 percent surge over the next 7 months. The position delta of the spread is .08, which indicates that it will increase in value by roughly 8 cents for each point move higher in the underlying.

Micron Technology (MU), which rallied earlier this week after winning an anti-trust case against Rambus (RMBS), is down 13 cents to $6.20 and a December 7 - 8 call spread is initiated on the chipmaker at 17 cents, 6250X. The strategist bought 6,250 December 7 calls on the stock at 23 cents and sold 6,250 December 8 calls at 6 cents. The spread is bullish, as it reaps its max payoff if shares rally to $8 or more through the expiration, which represents a 29 percent advance over the next four weeks. The position delta of the spread today is .18.

Bearish Flow

Morgan Stanley (MS) puts are heavily traded Friday. Shares, which suffered a two-day 11.3 percent skid prior to today, are up 7 cents to $14.20. Meanwhile, 46,000 puts and 11,000 calls traded on the investment bank. Some of the activity is likely closing trades ahead of the expiration. For example, November 14 puts, which are 20 cents out-of-the-money with just a few hours of life remaining, are among the most actives. 9,200 traded. However, the top trade of the day is in the January 2013 $13 puts after one investor bought a 10,000-contract block for $3.55 per contract. A shareholder might have initiated the put purchase to hedge stock after a week of volatile trading in MS.

CurrencySharesEuro Trust (FXE) edges up 47 cents to $134.62 and has recaptured some of the 5 percent loss suffered since late-October. FXE is a fund designed to track the performance of the EUR/USD currency pair (X100). The euro has added .5 percent to 1.351 against the buck today. In options action, a noteworthy trade in FXE Friday is a three-way spread in the January options. In this spread, the strategist apparently sold 5,000 January 141 calls on the ETF at 90 cents, bought 5,000 January 134 puts for $3.40 and sold 5,000 January 129 puts at $1.71. In other words, Jan 141 upside calls were sold to buy the Jan 134 - 129 put spread. 79 cents was paid for the three-way and the strategist seems to be expecting the euro to fall back to 1.29 on the buck through January 2012. The euro fell to a low of 1.31 in early-October when fears about the debt crisis triggered a sharp slide in the European currency.
Unusual Volume options volume is running 3X the (22-day) average, with 101,000 contracts traded and put activity accounting for 64 percent of the volume.

Focus Media (FMCN) options volume is 2.5X the average daily, with 43,000 contracts traded and put volume representing 61 percent of the activity.

Assured Guaranty (AGO) options volume is running 5.5X the average daily, with 26,000 contracts traded and put volume representing 90 percent of the total volume.

Increasing options activity is also being seen in Aruba Networks (ARUN), Clorox (CLX), and Guess (GES).

Implied Volatility Mover shares are down and options are heavily traded after the company reported earnings. The results beat Street estimates, but some investors might have been disappointed with guidance for the current quarter - which was in-line with previous expectations. CRM is down $12.42 to $113.67. Meanwhile, options volume is running 3.5X the daily average, with 111,000 contracts traded on the stock so far. November options, which are expiring after today, represent about half the day's volume. Players are probably scrambling to close out positions ahead of the expiration and implied volatility in options on CRM is down 32 percent to 52.

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