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Minyan Mailbag: Full Court with Dr. J



Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next article, written by Minyan Jon Najarian, with that very intent.

For more of Jon's work, click here.


Isn't that the answer Austin Powers gave when asked about drugs, "yes, please!" Well that certainly describes my feelings looking at the carnage on the Street, but this is also where the smart money has been for the past week, pushing volatility and volumes near record levels for the sector.

However, as usually is the case when volatility is bid up so high, even a very positive event, such as Lilly's (LLY) victory over the generics, barely moves the calls, as the "event risk" traders placed on those derivatives already took into account the potential for a very large move. To wit: LLY is up $4.24 to $59.40, but the April 55 calls are up just $.90, that's how much risk premium was built into LLY calls and puts! One more quick LLY call check showed the May 60 calls up just $.10 to $1.30 despite that 7.6% move by the underlying security. Pfizer (PFE) April 27.50 calls, which are now in the money are up a mere dime to $.45 on 21,000 contracts.

Now, let's take a look at Genentech (DNA), which is up 17% ($10.08 to $68.72) and its options are likewise HOT, HOT, HOT. However, we didn't know when we'd hear news of their 722 patient, late-stage clinical trial of Avastin with Chemotherapy against Chemo along. When those preliminary results broke DNA ran like a scalded dog, Thus far I show 97,000 calls and puts changing hands by mid-session. To demonstrate the difference between this and the I'm showing the April 65 calls in DAN trading up $3.85 to $3.90, a 7700% winner overnight! Total DNA volumes are 52,000 calls to 45,000 puts, but my dollar weighted numbers are 4:1 in the bulls court.

IBM (IBM) is trading down 7.7%, or $6.44 to $77.22 and the calls are being crushed while the puts are surging. Volumes look normal at 55,000 calls to 49,000 puts, but my dollar weightings show the puts leading the calls 3:1 by that metric.

Index Volume

Massive, Massive volume in the Russell 2000 (IWM) options, as the ETFs break down to 116.21 at mid session.

IWM volumes are understandably huge today as the small cap index is getting slammed and I'm showing better than 85,000 calls and puts changing hands. The highest volume of trading at a strike is the 27,000 contracts of the April 117 puts trading up $.40 to $.75.

The volatilty on the S&P 500 (VIX) is back over 15%, its highest reading since November of 2004. After trading 11.35% two days ago the VIX is up 33%, which pretty accurately reflects the near panic that has gripped traders as the major index contracts break through critical levels.

At the time of publication Mr. Najarian held positions in DNA & PFE .

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No positions in stocks mentioned.

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