Apple's Option Issues Highlight Quiet Day

Wednesday's stock rally sent the VIX down 5% to 10.67, dashing last week's hopes of an increase in volatility. Barring a market meltdown today or Friday, the gauge is likely to get squashed further and could slip back below 10 as traders dial the clock forward in anticipation of the three-day New Year's holiday weekend. Overall option volume this week has run about two-thirds the average daily volume and is likely to remain so this session.

But Apple (AAPL - commentary - Cramer's Take), which was the most active issue Wednesday, should be among the volume leaders again this session. The stock is poised to open lower on continued option grant issues. Implied volatility in Apple options -- the exchange-listed kind, not the "free cheese to executives" kind -- rose 15% to just shy of $50, which is just shy of a 52-week high. For those who believe this is an overreaction, selling some $70 or $75 puts might create a good entry point. The company has promised to file its restated earnings by the end of the year.

Other options volume leaders in Wednesday's session were big-caps such as Microsoft (MSFT - commentary - Cramer's Take), Google (GOOG - commentary - Cramer's Take) and Time Warner (TWX - commentary - Cramer's Take), whose July $25 calls saw notable activity with 12,800 contract trading in several large blocks.

The oil and energy names saw above-average volume as implied volatility ticked up 5% across the sector.

Look for homebuilders, which were among the best performers as Wednesday's better-than-expected new home sales helped spark the rally, to be active again today on the heels of this morning's exiting home sales number.

Wednesday's active volatility decliners were led by Emdeon (HLTH - commentary - Cramer's Take), whose IV fell 25% on a 1.5% move higher for the stock; Walgreen's (WAG - commentary - Cramer's Take), whose IV fell 11%; and Merrill Lynch (MER - commentary - Cramer's Take), whose IV declined 10% as shares moved higher.

In keeping with TSC's editorial policy, Steven Smith doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships.

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Steven Smith writes regularly for TheStreet.com. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He appreciates your feedback; click here to send him an email.

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