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 lea…

Today’s tickers: OSK, ACOR, FOE, VIX, XLF, YHOO, IRM, SHPGY, SKX, NTES, BBBY

OSK- Shares in heavy-duty truck maker Oshkosh Corp. dropped more than 9% to $9.89, breaching the prior 52-week low, after a pension fund representing united iron workers filed suit against the company for allegedly omitting material information from its financial statements that contributed to a 30-percent one-day decline in the stock. The acute impact on its share price carried over into a flurry of activity in its options, which traded at 6 times the normal level today. This appeared evenly split between puts and calls, which traded to buyers and sellers, speaking to a healthy “revolving door” of intraday trading volume. Front-month puts at the 7.50 and 10.0 strikes and calls at the 10.0 strike have been active today.

ACOR- Shares in Acorda Therapeutics, a biotech focused on treatments for nervous system disorders and spinal cord injuries, are trading 1.3% lower at $26.40 today. Short interest in Acorda has come off more than one-third since peaking in mid-July but is still somewhat elevated at nearly 15% of the float. Implied volatility on its options, meanwhile, comes in at 66% versus a historic record of 82% for the underlying stock. This lowball figure of 30-day implied volatility may have induced some traders to position for a near-term spike in put volatility by selling November 22.50 puts at $1.25 in order to buy October 25 puts at $1.50. While traders often resort to diagonal calendar call spreads to take advantage of time decay effects on near-term put positions, in this case the trader seems to have done just the opposite, betting on a spike in volatility that will increase the value of those October 25 puts. The acti…

Today’s tickers: MS, XLF, GFG, MTB, XLB, BMRN, IWM

MS- News of a broad-based government initiative to resuscitate the entire American financial sector sent bank and brokerage shares hurtling higher as volatility crashed lower (the VIX, we should note, has quickly shrunk back to the 30 level after breaking 42 in yesterday’s highly-charged session) in Friday’s expiration-day trading session. Shares in Morgan Stanley, which yesterday battled back from the precipice thanks to an SEC curtailment of short-selling on financial sector stocks, were up by more than 16% today, closing at $26.25. With calls and puts trading in relative balance today, earlier today we saw evidence of traders trimming positions at that October 7.50 put strike that was so alarming yesterday. Front-month calls at the September 30 strike are trading in excess of open interest, with traders bidding up the price to $1.25 (a 257% increase from yesterday’s session) on bets over whether Morgan Stanley can sustain a close above $30 today. We also observed traders appearing to sell out of puts at the January 25 strike at $5.50 per contract.

XLF- The surreal euphoria extended to the Financial Select Sector SPDR , the financial services basket that closed the day 10% higher at $22.10, with calls outtrading puts by a proportion of 1.3 to 1 on this most-momentous of expiration days. Besides heavy volume in October calls at strikes 19 and 20, we noted large-scale activity in excess of open interest at the October 22 put strike, which has traded 50,000 times and appears to be attracting long interest. Another huge glut of volume, a 100,000-lot position, appears to have been opened late this morning in December 18 puts at $1.25 per contract. We are…

Today’s tickers: MS, STT, LM, NAL, GGP, PLD, KG, DO

MS- The market has greeted news of acutely troubled brokerage Morgan Stanley ‘s “advanced” merger talks with Wachovia with a degree of ambivalence. While the Dow struggles to cling to upside following coordinated liquidity injections by multiple central banks, investor skepticism of the likelihood or compatibility of a Morgan/Wachovia matchup has been a dogged drag. Early losses have picked up the pace, with shares down about 19% to $17.63 (having been down as much as 40% earlier in the afternoon), and with options volume of 400,000 lots showing a skew to puts by a factor of 1.5. While some traders sought earlier today to trim positions in September 15 puts, as premiums seemed to have lost 28% of their value, a late-morning pickup in implied volatility to some 322% (versus 189% historic volatility) has renewed interest in that position. Volume here now exceeds open interest, and the implied volatility reading has topped 800%. We’ve also seen a major pickup in buying interest in October 7.50 puts, which have traded more than 34,000 times (8.5 times the open interest) at $1.55 per contract – indicative of traders positioning for the absolute worst that the market can throw at this stock.

VIX- One sign of foreboding this morning even as Wall Street was still parsing gains on back of the liquidity measures was the stubbornness of the fear gauge to retreat. On Wednesday, its close at 36.26 predicted peril in the morning. Early on the VIX began to pull ahead and by early afternoon topped out 41.44, easily its highest reading of the past year. The reality is that there is so much uncertainty that it’s hard to call anything resembling a top…

Today’s tickers: MS, STT, LM, NAL, GGP, PLD, KG, DO

MS- The market has greeted news of acutely troubled brokerage Morgan Stanley ‘s “advanced” merger talks with Wachovia with a degree of ambivalence. While the Dow struggles to cling to upside following coordinated liquidity injections by multiple central banks, investor skepticism of the likelihood or compatibility of a Morgan/Wachovia matchup has been a dogged drag. Early losses have picked up the pace, with shares down about 19% to $17.63 (having been down as much as 40% earlier in the afternoon), and with options volume of 400,000 lots showing a skew to puts by a factor of 1.5. While some traders sought earlier today to trim positions in September 15 puts, as premiums seemed to have lost 28% of their value, a late-morning pickup in implied volatility to some 322% (versus 189% historic volatility) has renewed interest in that position. Volume here now exceeds open interest, and the implied volatility reading has topped 800%. We’ve also seen a major pickup in buying interest in October 7.50 puts, which have traded more than 34,000 times (8.5 times the open interest) at $1.55 per contract – indicative of traders positioning for the absolute worst that the market can throw at this stock.

VIX- One sign of foreboding this morning even as Wall Street was still parsing gains on back of the liquidity measures was the stubbornness of the fear gauge to retreat. On Wednesday, its close at 36.26 predicted peril in the morning. Early on the VIX began to pull ahead and by early afternoon topped out 41.44, easily its highest reading of the past year. The reality is that there is so much uncertainty that it’s hard to call anything resembling a top…

Today’s tickers: MS, GS, VIX, XLF, C, UYG, GG, XRX

A massive selloff in financials, a flight to safe-haven instruments, and a gain in volatility militates against the Fed’s best intentions with last night’s reluctant AIG bailout

MS- Early reports following news of the government-led bailout of AIG brought percolations that Morgan Stanley might be in the market for a merger. The news came one day after the investment bank expedited its quarterly earnings numbers, which strongly outperformed street estimates, and a leak (if that’s what it was) which may have been contrived as a pre-emptive PR measure to assure investors that CEO John Mack was not suffering the same kind of gold-plated delusion that appears to have sent Lehman Brothers’ CEO Richard Fuld down with the proverbial Hesperus. CNBC news reported this morning that while Morgan Stanley was not in merger talks, the company was taking the situation “day by day,” and that Mack was (unlike Fuld) open to the possibility of seeking a merger if forced by irrational market activity into such action. Even with the market bridling against the sense of moral hazard that arose from the AIG bailout and that institution’s failure to secure a private-sector solution, the report had an immediately counterintuitive impact on Morgan’s share price. It was as if investors, in the space of a few days, got wise to the notion – post-Lehman, Merrill, AIG debacle – that well-capitalized buyers of strategic assets in the financial space may have become loath to offer premiums, or even book value in some cases, but may be willing to bide their time and swoop in to cherrypick valuable assets when a company is in proverbial thumbscrews.

The fire-sale implications and share price downdraft were furt…

Today’s tickers: AIG, UBS, CIT, GE, DIA, DELL, GGP, TROW

AIG- The morose waiting game continues for AIG after today’s decision by the Federal Reserve to leave rates unchanged. Just prior to the announcement, we had noted a pullback from earlier highs in implied volatility and a slight paring of losses. Post-Fed, the higher implied volatility spiral and downside in the share price appears to have picked up where it left off and we now find shares down 44% to $2.63 and implied volatility at 596.4% (versus 144.0% historic volatility) With around 500,000 trading by late afternoon, the price of the front month straddle at $2.60 is virtually indistinguishable from the share price – and indeed, when shares were trading at their lowest pall of the day at less than $2 the cost of option protection exceeded that amount. In contemplating AIG’s fate, we’re reminded of nothing so vivid as the thread of the spider’s web keeping the falling rock at bay in Jonathan Edwards’ “Sinners in the Hands of an Angry God” – which could explain why so many calls are trading today (outtrading puts by 1.8) as traders relinquish the company’s destiny to something larger. Directional calls on the stock seem pitifully inadequate, as ultra-low-strike puts and calls trade with relative balance to buyers and sellers at the 2.50, 5.0 and 7.50 strikes in September and October.

UBS- A momentary trading halt in UBS shares during the European session, owing to precipitous declines in the stock, has colored much of the trading action today. Implied volatility in UBS AG’s options is up some 35% on the session to 126.4% - more than twice the historic reading on the stock – a…