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Full Court with Dr. J


Thx Dr. J!


With this article Minyanville is proud to welcome Jon "Dr. J" Najarian, as its latest contributor. Dr. J brings a tremendous wealth of expertise relating to options trading to the 'Ville. Please take a look at for more of Jon's work.

We look forward to hearing more of his thoughts; feel free to e-mail him at to say hello.

  • RECORD VOLUME - CBOE traded 4.05 million contracts on Friday, which was a million more than the record they just set on the previous session! Additionally, the SPIDER options (SPY) traded an exchange record 305,445 contracts. Wednesday the CBOE's volatility measure of the S&P 500 stood at 11.40%, but Friday it spiked over 17%. This morning on near panic trade, the VIX hit a high of 18.59% before easing back to 17.07% at mid session. Likewise, the CBOE's volatility index for the Nasdaq (VXN) moved higher, but it lagged the S&P 500, as the VXN low ebb was Thursday, with a reading of 16% and then hit a high of 22.26% this morning.

  • Sirius Satellite (SIRI) gets Martha to sign an exclusive 4-year deal to create and launch her own branded radio show(s). Look for cooking, entertaining, gardening and more from the domestic diva. I don't show extraordinary volume in either Martha Stewart Living Omnimedia (MSO), or SIRI, but both stocks moved up and puts were being sold in each, a sign that investors would be comfortable owning shares at lower prices if indeed shares fell. Meanwhile they keep the premiums if MSO, or SIRI stay above the put strikes being sold.

  • Last week it was the drug sector that fought the good fight in a very tough trading environment and as this week kicks off, it's the steel stocks that are rocking. US Steel (X) is up nearly 4% ($1.58 to $44.49) and the at the money May 45 calls are up $.75 to $2.35, a 46% gain as more than 2,700 calls change hands, over 600 more than the open interest at that strike! Nucor (NUE) is also very strong at mid-session, with a move of over 4% and option trading picking up in this name as well.

  • Put a post-it note to yourself to look at 3M (MMM) if it breaks down to the October 18th low of $73.31 for a potential move to the upside! Net income was up, global sales were up and they confirmed earnings guidance for profits of between $4.15 and $4.25 for 2005. I show the May 75 puts up 209% to $1.80 and the May 80 puts up $2.90 to $4.90, a 145% gain! Meanwhile the 3M July 75 calls are getting smoked, losing nearly half their value as they fall $3.30 to $3.70


  • Adobe's (ADBE) bid for Macromdia (MACR) is not being widely applauded, as what was a $3.5 billion deal when announced just hours ago, is now a $2.7 billion deal, as ADBE is buying MACR with its stock, which is down over 10% on heavy turnover, while MACR is up 9%. Given the buyout ratio set by ADBE at .69, each MACR shareholder would get $37.48 with ADBE trading $54.32, so the arbs are looking to lock in the differential, selling or establishing short in ADBE and buying or establishing longs in MACR.

  • Another merger that is getting a better reception on Wall Street is GameStop (GME) and Electronics Boutique (ELBO). Under the terms they announced ELBO shareholders will get $38.15 in cash, PLUS .79 shares of GameStop. ELBO is up $14.55 or 35%, while GME is also up $2.84 or 13%. Neither ELBO nor GME have much in the way of open interest, so very few option buyers are profiting from the big surge, but May 45 calls are up from a Friday close of $.85 to $11 this morning!

Lastly, I'm going to talk volatility and options on Bloomberg TV this afternoon at 2:45 CT.

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Position in SIRI, MSO and NUE. We have sold MACR and ELBO
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