Treasury Pick Soothes Volatility

News of Timothy Geithner's supposed appointment to the U.S. Treasury sparked a 355-point rally in the market late in the day Friday, providing clarity after a rangy and dispirited session and bringing late-day relief of nearly 9 points to the VIX, which still closes the week at 72.00.

Options action in the VIX showed spreaders making bets on volatility remaining nonetheless high for the rest of the year. In one case, it looks like the December 70 calls were sold in a 2,500-lot transaction against the purchase of January 70-strike calls, a move which, while it implies VIX volatility pulling below a 70% reading into December, also implies that January volatility is underpriced relative to December. This is bound to be cold comfort to traders hoping for some normalization in the volatility index as we turn the page into 2009. Further protraction in this "nosebleed VIX" is likely to keep option volumes quite low on the whole.

Elsewhere in late-day action, options volume in Biogen Idec (BIIB - commentary - Cramer's Take) soared to 11 times the normal volume, even as shares gave up about 57 cents in value to $39.19 despite the broader market rally. Earlier in the day, a 52-week low was set. It appears that a trader took the opportunity to roll out a short position in November $40 puts to the December contract, banking on shares remaining above the strike price into December, or a comedown in implied volatility that might allow for the closure of those puts at a favorable trading price.

Another 5,000-lot call spread appeared in the January contract, which appears to have been a bullish debit spread between strikes 50 and 65, with the trader paying $1.20 per contract in anticipation of seeing a rebound above $51.65. Given today's share price action, this appears optimistic indeed. But we have not been able to verify that this was an opening position, so any extrapolation of directional share price should be considered with that limitation in mind.

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At the time of publication, Darst had no positions in the stocks mentioned.

Rebecca Engmann Darst is the Portfolio Manager for TheStreet.com?s Options Alerts Portfolio newsletter and an equity options analyst for RealMoney Each Thursday at 6:30 a.m. EST, she delivers the early-morning lowdown on option volume and sector trends on CNBC's "Squawk Box." Prior to her work in the equity options market, she spent seven years in Scandinavia as a Copenhagen-based chief reporter for a European Commission news service, correspondent for Spanish daily El Mundo and Radio Netherlands, followed by stints at Nordea Bank and Saxo Bank.