Tuesday's Options Recap

Sentiment

Stocks opened modestly lower in cautious trading Tuesday morning and the selling pressure intensified around 11:00 ET when Treasury Secretary Tim Geithner unveiled the details of the Treasury Department's much-anticipated bank bailout package. While Geithner didn't color outside the lines, the Treasury Secretary also failed to provide a concrete framework for solving the deep-rooted problems in the banking industry. One of the key components some market watchers were expecting -- a "bad bank" designed to help financial institutions rid themselves of toxic debt -- was noticeably absent.

Investor dismay was evident almost immediately, as stocks cratered shortly after the details of the plans were released. News that the fiscal stimulus bill had cleared the Senate and comments from Fed Chairman Ben Bernanke did nothing to stem the market slide. The Dow Jones Industrial Average is down 350 points heading into the final hour, with financials (AXP, C, and BAC) pacing the decline. Crude oil is also under pressure--giving back early gains and moving down $1.56 to $38 a jug. The CBOE Volatility Index (.VIX) has rallied up to 47.23 (+3.59). Approximately 7 million calls and 6.6 million puts have traded so far.

Bullish Flow

Foundation Coal (FCL) is seeing relative strength and calls are active ahead of a Feb. 12 earnings releases. FCL is up 46 cents to $18.73 and Feb 20 calls are active. 5,400 contracts traded, including a block of 4,400 bought for 90 cents and tied to 192K shares at $18.95.

Century Aluminum (CENX) is down 27 cents to $4 and call volume is running at about 5X (522 percent) the expected for this time of day. 4,475 contracts traded. The top trade of the day is 1400 June 7.5 calls mid-market for 45 cents. The day's other trades have been mostly in smaller size and focused on June and Feb 7.5 calls traded ask-side. Looks like speculative call buys, perhaps in anticipation of Feb 19 earnings.

Bearish Flow

Puts on Broadcom (BRCM) are actively traded, again. Yesterday, the Mar 18/16 and May 18/17 put spreads saw volume and increasing open interest. Today, looks like straight put buying in May 18 and May 15 puts. Shares are down 25 cents to $17.96. Implied volatility is up to 58 from about 55 the day before.

Comerica (CMA) gapped down at the open and has been in freefall ever since. Shares of the Dallas, TX regional bank are down $3.14, or 16.5 percent, to $15.92 and 7,200 puts have traded, compared to 1,950 call options. Investors are scrambling to buy Mar 10 and Feb 15 puts as the stock falls to session lows. Implied volatility is up to 106, from about 91 the day before.

Implied Volatility Movers

Arena Pharmaceuticals (ARNA) options activity is running at 5X the usual and implied volatility is rallying to new highs. Implied volatility is up to 213, compared to a 52-week high of 197 set the day before.

Implied volatility is also higher in Computer Sciences (CSC), Vale (RIO), and General Electric (GE). Meanwhile, implied volatility is lower in Citi (C), BofA (BAC), and UBS (UBS).