Thursday's Options Recap

Sentiment

Volatility kicked up a notch Thursday, as financials faltered ahead of the official release of "stress test" results due out at 5:00 pm eastern time. The numbers have been leaked in recent days and the Select Sector Financials ETF (XLF) was up 17.2 percent on the week heading into Thursday's session. The group extended the advance early, but perhaps due to exhaustion, faltered in mid-morning action. A bear raid ensued and the XLF is down 50 cents to $11.98 on the day and down 8.3 percent from its best levels of the trading session.

The day's other news was mixed. Wal-mart (WMT) reported a 5 percent increase in April same store sales, or about double analyst estimates, but guided estimates lower for the second quarter. Weekly jobless claims fell to 601,000 last week and 45,000 more than expected, but the total filings for claims hit a 14th straight record at 6.3 million.

Attention now turns to Friday's monthly payroll data from the Labor Department. Economists expect to see another 600,000 jobs lost in April and an unemployment rate of 8.9 percent, up from 8.5 percent in March.

After falling to multi-month lows Wednesday, the CBOE Volatility Index (.VIX) is up 1.80 to 34.25 ahead of the jobs data and the stress test results. The Dow Jones Industrial Average is down 150 points and the tech-heavy NASDAQ lost 55 after Cisco (CSCO) sank on mixed earnings news. Trading in the options market is very active, with 11.1 million calls and 8.5 million puts changing hands with about 45 minutes left to trade.

Bullish Flow

Dell Computer (DELL) is down 89 cents to $11 and options volume is running almost 4X the expected for midday. Some investors might be reacting to reports Dell is studying Google's (GOOG) Android operating system for future PC products. The talk was apparently fueled by a press release from a company called Bsquare, which suggested the possibility. However, a Bsquare spokesperson said the release was issued in error. After hitting a high of $11.94 early, DELL shares are near session lows on a tough day for tech stocks. Nasdaq is down 30. 52K calls and 13K puts traded on DELL.

Mirant (MIR) calls are actively traded ahead of a May 8 earnings release. Shares of the utility company are unchanged at $14.65 and most of the focus is in Jun 17.5 calls, with 2,282 and about two-thirds hitting ask-side. Existing open interest is 1,283 and ISE sentiment data confirm that customers are opening new positions in MIR calls. The volume isn't huge, but is noteworthy because MIR calls were actively traded last Wednesday as well, with active trading seen in May and June 15 calls.

Bearish Flow

Manitowac (MTW), the Wisconsin-based farm and construction machinery co., is down 29 cents to $7.19 and directional sentiment in the options market seems bearish Thursday. 9,200 puts traded, or about 18X the expected for Noon eastern time. June 5 and 7.5 puts are leading the order flow. The top trade is 3,488 June 5 puts for 35 cents on PHLX when the bid-ask was 25 to 35 cents. Another big trade is 1,224 June 7.5 puts for $1.20 on CBOE when the spread was $1.10 to $1.20.

Expeditors Intl (EXPD) is down $2.66 to $34.47 and the May 30 - 35 call spread trades 10000X for $4.05. The activity appears to close out a position opened in mid January. On the 15th, for example, the same spread traded 8000X for $1.79.

Implied Volatility Movers

Vanda Pharmaceuticals (VNDA) rallied $8.18, or 757 percent, to $9.25 after the FDA approved VNDA's Fanapt for schizophrenia. Shares are rallying and puts are heavily traded, with some players possibly selling June and Sept 5 puts to capture high volatility as the stock rallies on the news. Implied volatility is still elevated, around 148, but about half the levels seen the day before.

Implied volatility is also lower in Cisco Systems (CSCO), Eagle Bulk Shipping (EGLE), and MBIA (MBI). Meanwhile, implied volatility is higher in Chico's FAS (CHS), BofA (BAC), and the Select Sector Financials (XLF).