Wednesday's Options Recap

Sentiment

Stocks are broadly higher late Wednesday, with banks and Disney (DIS) shares leading the Dow Jones Industrial Average to an 80-point gain. Stocks opened the session on solid footing after the latest jobs data from ADP showed the economy losing 491,000 jobs in April; which was bad, but not as grim as the 645,000 job loss economists feared.

Meanwhile, BofA (BAC) gained more than 15 percent to $12.50 per share on reports the bank will be required to raise $35 billion in capital, but it is expected to come from common equity rather than outside its existing capital base. The Select Sector Financials (XLF) is up .79 to $12.35.

Disney (DIS) is also helping the Dow. Shares are up 11.8 percent late in the day after the company reported earnings that beat Street estimates. Meanwhile, the NASDAQ is lagging, up just 3.5 points, ahead of earnings from Cisco Systems (CSCO) due out after the closing bell.

Crude oil finished at six month highs and gold gained $7.10 to $911.40 an ounce. In the options market, trading is active, with approximately 10.1 million calls and 7.2 million puts traded across the exchanges thus far.

Bullish Flow

Eagle Bulk Shipping (EGLE) is up 74 cents to $9.07 and calls are actively traded ahead of earnings due out after the closing bell. 7,900 contracts traded, compared to 900 puts. May 10 calls are the most active, with 3,940 and some players might be buying premium–perhaps because Dryships (DRYS) has been ripping higher ever since reporting better-than-expected earnings Friday.

Coal stocks are hot after Alpha Natural Resources (ANR) reported strong earnings. The Market Vectors Coal Fund (KOL) is up $1.24 to $22.33 and up 36.9 percent from a week ago. ANR is up $5 to $30.32 and 31K calls traded, compared to 5,800 puts. Players are also looking for additional upside in Massey (MEE) calls (11,000 traded, compared to 4000 puts), Arch Coal (ACI) calls (23K traded, compared to 5,340 puts), and Foundation Coal (FCL) calls (with 4,180 traded, compared to 570 puts.)

Bearish Flow

Dillard's (DDS) is down 6 cents to $8.36 and May 7.5 puts are active Wednesday. 3,300 contracts traded and all of that volume hit ask-side. In addition, since existing open interest is 984 contracts, it appears that some investors might be buying-to-open puts on the retailer, perhaps in anticipation of weak monthly sales numbers expected Thursday.

Microchip (MCHP) puts are active for a second day heading into a May 7 (after market) earnings release. Open interest in MCHP puts increased by 17K following a day of active trading, with May and June 25 puts leading the flow. The same two contracts are active today, as it appears the spread was bought (bought June, sold May) more than 9000X today – possibly rolling out a bearish position from May to June.

Implied Volatility Movers

The CBOE Volatility Index (.VIX) is down for the sixth time in seven days and falling to seven-month lows. VIX is down .42 to 32.94 after the Dow spent most of the past two days in a tight range. The industrial average traded in a 95-point range Tuesday and is in a 101-point range today. The lack of movement in the major averages is putting pressure on VIX, which is at its lowest levels since late September. VIX measures the expected volatility priced into S&P 500 Index options.

Implied volatility is also lower in Wells Fargo (WFC), Disney (DIS), and Garmin (GRMN). Meanwhile, implied volatility is higher in General Motors (GM), Intel (INTC), and the SPDR Homebuilders Trust (XHB).