Monday Options Recap

Stocks are trading broadly lower for a third day amid ongoing concerns about the global economy and corporate earnings. Worries about the economic outlook remain elevated as fiscal stimulus and Obama's "bad bank" plan seem to have stalled.

Republican leader Mitch McConnell warned Sunday that a stimulus bill that cleared the House last week could face defeat in the Senate due to excessive spending. Meanwhile, banks are seeing another day of losses after Obama's "bad bank" plan went MIA. The lack of help from Washington comes as investors face another busy week of economic news, which concludes with key monthly jobs data Friday.

Monday's economic data were mixed. Numbers released early showed personal incomes and spending falling .2 percent and 1.0 percent during the month of December, which was not too far from economist estimates. A separate report showed construction spending falling 1.4 percent in December, which was below economist estimates of 1.2 percent. A third piece of data helped give the major averages a lift in morning trading: The latest ISM manufacturing index showed unexpected improvement in January. The post ISM gains proved short-lived, however, and the major averages were back under pressure in afternoon trading. Earnings-related jitters are possibly a factor ahead of reports from ADM (ADM), BP (BP), Dow Chemical (DOW), Merck (MRK), Disney (DIS), Motorola (MOT) and a host of others Tuesday.

In the options market, the tone of trading remains cautious. While the Dow Jones Industrial Average (INDU) is down 114 points heading into the final hour of trading, the CBOE Volatility Index (VIX) is up 2.16 to 47. Approximately 3.8 million puts and 4.4 million calls have traded on the session.

Bullish Flow

Interest is picking up in Juniper Networks (JNPR) calls after last week's post-earnings sell-off. Shares rose 30 cents to $14.16 early and 21,000 calls had trading within the first hour or so, compared to 3,000 puts. Directional sentiment was bullish (78 percent) amid heavy buying in the Feb call with strike prices ranging from 15 to 18. April 21 calls are also seeing action early.

Bullish flow in AGCO (AG) Monday! Shares of the Duluth, GA farm machinery company are down 13 cents to $21.15 and February 22.5 calls are being bought to open. 2,315 traded, 99 percent ask-side. Implied volatility is up to 91 from 86 lat Friday. Action comes ahead of a Feb 9 earnings release.

Bearish flow

Macy's (M) shares spiked down to $7.50 midday after the company lowered earnings guidance and said it was cutting its dividend. M has since battled back to $8.15, down 80 cents in afternoon action. Options trading is brisk, with Feb 7.5 puts leading the most actives (12k) and implied volatility jumping to 117, from about 97 the day before. Recent trades show a shift in sentiment. Feb 10 and May 12.5 calls are active, with more than 22K traded. On the ISE, sentiment data shows opening customer call buys jumping from 162 contracts to 8,664 (70 percent of total volume) from 13:20 to 13:30 ET.

Ralph Lauren (RL) is down $2.14 to $38.89 in sympathy with Macy's. Sentiment in the options market is bearish as well, with 5,360 puts traded, or about 10 times the number of calls. 4,700 Feb 40 and 35 puts traded and ISE sentiment data suggests almost 70 percent is opening customer buy orders. The interest in RL puts comes ahead of earnings Wednesday before market.

Implied Volatility Movers

Dryships (DRYS) is down $1.54 to $5.09 after Financial Times reported the company faces another debt problem. The company is likely to retain the liability of $650 million in debt from an offshore oil-drilling business that it now wants to spin-off. In the options market, volume is running at 3X the expected levels. Implied volatility is up to 252, from just under 200 the day before.

Implied volatility is also higher in Juniper Networks (JNPR), Citi (C), and SanDisk (SNDK). Meanwhile, implied volatility is lower in Humana (HUM), Corn Products (CPO), and GE (GE).