Historical volatility (also called realized volatility or statistical volatility and often designated by “HV”) is the actual volatility realized by the underlying security, measured in terms of the magnitude of recent price movement. Specifically, HV is the annualized standard deviation of an asset. This figure is stated as a percentage of the asset price. Even to non-option traders, HV is a helpful guide to comparing the volatility of a stock with another stock or itself over time. For example, a stock with a 20 percent HV is less volatile than one with a 40 percent historical volatility. Also a stock with a current HV of 50 percent is more volatile than it was if its HV was 30 percent at some time in the past.

While HV looks back at actual asset prices, implied volatility (or “IV”) looks forward. IV is generally interpreted as the market’s consensus expectation for the future volatility of an asset. This figure is also stated in percentage terms and can be derived from the price of an option. Specifically, it is the expected future volatility of the underlying implied by the price of its options. For example, a stock with a 20 percent IV is expected (by the market as a whole) to experience less volatility than a stock with a 40 percent IV. The IV of an asset can also be compared with itself over time. For example, if a stock currently has an IV of 50 percent versus 30 percent in the past, the market now expects the stock to be more volatile than it previously did.

Starwood Hotels (HOT) is down 26 cents to $33.92 and 18K puts traded so far. The volume represents 5X the expected and 6X the number of calls. The top two trades: 4650 (X 2) Oct 31 puts for 90 and 95 cents on AMEX, which might be opening purchases. On the ISE, where 16 percent of today’s HOT puts have traded, ISEE data shows that 2266 puts (87 percent) are opening customer buyers. No headlines on HOT today. Average implied volatility is 51 (+1).

Procter & Gamble (PG) is up $1.91 to $57.44 after Citi analysts raised the stock to Buy Friday. Options volume is running 2X the normal due to heavy trading in Sep 57.5 calls. 36.6K now traded, with the stock very near to being pinned to that strike and some late day sellers collecting a nickel.

*Scanning all single-stocks subject to 2500 contracts minimum call or put volume

Tenaris (TS) is up 59 cents to $36.63 and optios volume is running 4X the average daily on increasing interest in Oct 40 calls. 2,250 traded vs. ope interest of 178. Looks like buyers, possibly non-customer, as ISEE data indicate that only 1 percent, or 20 TS calls, were opening customer buyers. Implied volatility is eding up to 35, from 32.5 late Thursday.

Halozyme (HALO) saw a bearish position put on in the form of a risk reversal Thursday, as a trader sold 750 March 2010 $7.50 calls at $1.10 and bought 750 of the March 2010 $5 puts at the $0.45 offer. Shares are currently trading at $7.30 and have been in a tight range, ready to breakdown. Halozyme is a BioTech so we can throw valuation out the window and look for upcoming catalysts. The company will present at the UBS Life Sciences Conference on September 22nd at 3pm, and give investors a look at its pipeline. Halozyme currently has patients enrolled in Phase 3 trials for GAMMAGARD LIQUID for treatment of primary immunodeficiency disorder, and also has a Phase 2 trial going for Type 2 Diabetes.

Arena Pharma (ARNA) Update: shares have now reversed and are trading 13% higher to $5.55 on the day. The early selling of puts has now given way to a near panic of call buying with the October $5 calls have now traded over 16,000 contracts compared to prior OI if 12,000 and there is spillover volume in the $6 and $7.50 strikes. The catalyst for the reversal, aside form some short covering, seems to be the company still feels confident the obesity drug will meet efficacy standards to gain approval. Meaning the stock will live to trade another day..

*Scanning all single-stocks subject to 2500 contracts minimum call or put volume

Eastman Kodak (EK) is down 24 cents to $5.69 and has been under pressure since Thursday morning when EK said it expects to raise $700 mln through financing transactions and also lowered 2009 earnings guidance. Options are busy for a 2nd day, with total volume running 5X the average daily. Like Thursday, April 6 calls are leading the order flow. 33.8K traded — 81 percent hitting ask-side. A lot of the activity has been on the ISE, where sentiment data indicate that customers have bought-to-open an impressive 17K EK calls today. IV = 99 (-10).