Monday's Options Recap

Sentiment

Stocks can't break the bearish funk. The Dow Jones Industrial Average opened higher and rallied to 7,441 early on reports the government was taking a stake in Citi (C), but not completely taking over the financial services company. Fears also subsided after BofA (BAC) CEO Ken Lewis said over the weekend that there is no reason the bank should be considered for nationalization. BAC and Citi, which suffered steep losses on fears of nationalization last week, rallied early and the move helped send the major averages to higher ground in early action.

Another wave of selling quickly swept through the equity market in morning trading, however, and by midday the Dow Jones Industrial Average was once again showing a loss. While shares of Citi and BofA remained above water, 23 of the Dow thirty were lower and the industrial average was down 90 points by Noon ET.

A rally attempt surfaced in afternoon action after the White House said a privately-owned banking system is best, but investors sold into the strength. The slide gathered momentum during the final hour on reports AIG (AIG) is in need of more capital. According to CNBC reports, the insurance company is in talks with the government to get more funds to maintain its operation past Monday.

The market slide continues. The Dow is down 200 points with 50 minutes left to trade and at 7,166 is 3.7 percent below its best levels of the session. The CBOE Volatility Index (.VIX) gained 2.73 to 52.03. Trading in the options market remains active, with approximately 5.4 million puts and 5.9 million calls have traded so far.

Bullish Flow

Dell Computer (DELL) calls are active ahead of earnings later this week (Thursday, after market). Shares are down 18 cents to $8.23 and 32,000 contracts traded early, or almost 10X the number of puts. Trades include a bullish 1X3 May 8-11 call spread bought for 53 cents (5,000 May 8s:15000 May 11s).

Lifetime Fitness (LTM) is down 51 cents to $9.51 and Mar 7.5 puts are active after an investor sold 9000 for 25 cents. 10K now traded, compared to open interest of 99 contracts.

Genuine Parts (GPC) is down 31 cents to $28.55 and hit its lowest levels in five years, but directional sentiment in the options market seems bullish after a player sold 20,722 Mar 25 puts for 45 cents. Looks like a new position as existing open interest is only 80 contracts.

Bearish Flow

Humana (HUM) is down $8.54 to $32 and leading the managed healthcare group lower after the Center for Medicare & Medicaid released 2010 Medicare Advantage rates, which showed a capitation rate increase of .5 percent. Street analysts were looking for 2 to 5 percent. The news triggered a volatile reaction in HUM and heavy trading in the options (22K puts/21K calls). Not all of the activity is bearish, however, as recent trades include an April 35/40 call spread bought 3000X for $1.30.

Estee Lauder (EL) is down $1.09 to $23.64 and to its lowest levels in more than six years. Directional sentiment in the options market is bearish as well, with more than 5K April 22.5 puts traded. It includes a block of 4000 at the offer for $1.30; which was an opening customer put purchase, according to ISEE sentiment numbers.

Implied Volatility Movers

New York Community Bancorp (NYB) put option volume is running at 7.5X (748 percent) the expected for midday trading with increasing activity seen in Mar 10 and 7.5 puts. Shares are down 43 cents to $9.70 and 5700 puts traded, compared to 1,100 calls. Implied vols up to 83 from about 73 late Friday and highest since early December.

Implied volatility is also higher in Dell Computer (DELL), US Steel (X), and General Electric (GE). Meanwhile, implied volatility is easing in BofA (BAC), Garmin (GRMN), and Nova Chemicals (NCX).