Thursday's Options Recap

Sentiment

Stocks have given back early gains and are falling to session lows, as the bearish underlying tone continues Thursday. The Dow Jones Industrial Average rose to a high of 7,402 early in the trading session. BofA (BAC) helped. Shares of the embattled bank rallied to a high of $5.89, up more than 13 percent on the day, after announcing plans to sell its First Republic Bank, which it acquired in its deal with Merrill Lynch.

Better banking news from overseas helped early trading as well. The Royal Bank of Scotland (RBS) reported a $34 billion annual loss, which was apparently not as bad as feared because shares rallied 20 percent on the news. Meanwhile, UBS (UBS) gained after the Swiss Bank named ex-Credit Suisse chief Oswald Grübel as chief executive.

The early enthusiasm quickly waned, however, as investors grappled another round of bleak economic stats. Numbers released early in the day showed orders for durable goods falling 5.2 percent in January and much worse than economist estimates of -2.5 percent. A separate report showed jobless claims increasing by more than 30,000 to 667,000 last week. Economists had predicted a decline of 5000. Finally, new home sales fell more than expected. Sales dropped to an annual rate of 309,000 in January from 344,000. Economists had expected a decline to 324,000.

With economic data still disappointing to the downside, the gains in the bank sector weren't enough to keep the sellers at bay. With 40 minutes left to trade, the Dow Jones Industrial Average is down 95 points to new session lows of 7,176 and 226 points off the best levels of the trading session. The CBOE Volatility Index, which fell to a low of 41.91, is battling back from two days of hefty losses. VIX is up .60 to 45.28. Trading in the options market is running at about the typical pace, with 4.5 million puts and 5.9 million calls traded so far.

Bullish Flow

SanDisk (SNDK) is up 45 cents to $10.21 and not far from session highs ahead of a presentation today (2:40 ET) at the Goldman Sachs Tech and Internet conference. Directional sentiment in the options market seems very bullish, amid heavy trading in Mar 11, Mar 12, Apr 11, and April 13 calls. Looks like buyers dominating the action. Implied volatility in the March atm call is 88 percent, up from 84 the day before.

Freeport McMoran (FCX) made a run to $31.91 and broke above its Jan highs to its best levels since early November. Shares are up $1.61 to $30.93 and Mar 35 calls are seeing heavy trading in recent action. 27.4K now traded, compared to 24.9K of open interest.

Dell Computer (DELL) calls are active ahead of earnings after the close. 59K contracts traded, or almost 4X (393 percent) the expected for this time of day. March 8 and 9 calls are the most active and recent trades include 5,292 Mar 8 calls at the offer for 84 cents and 4,871 Mar 9 calls on the bid for 37 cents. Looks like openng trades in the $8 strike, with 14.3K traded total, or almost double existing open interest. Shares are down 3 cents to $8.33 ahead of the news.

Bearish Flow

Cypress Semiconductor (CY) is up 20 cents to $5.34 and 13,000 puts traded, or 27X the number of call options. Active trading is being seen in June 6, June 5, and April 6 puts. None of the day's trades have been larger than 650 contracts and seem to include a mix of buying and selling. Directional sentiment based on total order flow is 59 percent bearish.

United Healthcare (UNH) options volume is running at 24X (2458 percent) the expected for the first hour of trading. Shares are down $2.63 to $20.40 amid a broader sell-off in managed care stocks (CI, CVH, HUM, AET, WLP, HNT) on concerns the Obama administration will change Medicare spending rules to help slash the massive budget deficit. 22K puts and 22K calls traded on UNH so far.

Implied Volatility Movers

Titanium Metals (TIE) implied volatility is elevated ahead of earnings. The last report was on November 4 and the next report is expected soon. Exact date is unknown. Call options are heavily traded today, with almost 8000 traded, compared to 580 puts. Implied volatility is up to 106 (+13) and its best levels since early December.

Implied volatility is also higher in Cigna (CI), United Healthcare (UNH), and Aetna (AET). Meanwhile, implied volatility is easing in General Electric (GE), BofA (BAC), and JP Morgan (JPM).