Volatility Coming in as Market Shakes Off Dubai Panic

The SPDR S&P 500 ETF SPY is up 54 cents, or half a percent, to $110.11 after a big sell-off in Friday’s session. The December 110 straddle is trading at $4.48; at Friday’s close, the same straddle was priced at $4.74. We are seeing more than a 24-cent decline as implied volatility comes in. Investors are bidding up the SPY after the UAE said it would supply some backstop for Dubai. So far in trading, investors are liking this news.

General Electric GE has edged eight cents higher, moving up half a percent to $16.02. Earnings are expected on January 21. Today we are seeing news that GE may be eying a joint venture partner to expand its home loan business. The December 16 straddle is trading at $0.97; at Friday’s close, the same straddle was priced at $1.03. The March 13 puts have been active today, along with the June 12.50 puts. About 10,000 of the March puts hit the tape in the first few minutes of trading today and it looks like these were sold for 40 cents each.

American International Group, Inc. AIG is down $1.82, or 5.5%, at $31.48 after Bernstein lowered its price target on the stock to $12 from $20. Earnings are expected on March 2 before the open. The December 32 straddle is trading at $4.62; at Friday’s close, the 33 straddle was priced at $3.69. After seeing declining options volume for the past several weeks, AIG is seeing ramped-up activity today, most notably at the December 25 and 30 put strikes, as more than 12,000 contracts have traded on each put. Heading into today’s session, these front-month options were home to open interest of 4,585 and 9,775, respectively. It looks as though a customer sold about 10,000 of these put spreads as the stock tumbles in volatile trading.