Tuesday's Options Recap

Sentiment

Stocks overcame midday weakness and are trading mixed late Tuesday. With one hour left to trade, the Dow Jones Industrial Average is up 65 points and making a run to session highs with help from companies with relatively stable earnings like Pfizer (PFE), Coca Cola (KO), Merch (MRK), and P&G (PG).

General Motors (GM) is down 21.5 percent and one of 13 Dow stocks seeing losses. GM shares fell to their lowest levels since the Great Depression, as the automaker teeters near the brink of bankruptcy and rival Ford Motor (F) announced a 300 million stock offer.

Financials are also lower after a number of banks also announced plans to raise capital through common stock offerings. Technology shares are lagging and the tech-heavy NASDAQ is down 10.5 points.

The economic calendar included a report on the trade balance, which widened a bit less than expected in April, and a report on home prices, which showed further declines in 88 percent of the areas surveyed. There was little reaction to the day's economic news. Investors are now waiting for key retail sales numbers due out Wednesday morning.

Trading in the options market is picking up due to the expiration later this week. Approximately 7 million puts and 5.3 million calls traded so far. The CBOE Volatility index is down .94 to 31.93 and heading to fresh seven month lows, as a day of mixed trading has the S&P 500 up just 1.5 points.

Bullish Flow

Mosaic (MOS) is up $2.52 to $47.09 as the "ag" stocks (MON, POT, AG, TRA, CF, AGU) show impressive relative strength Tuesday. In the options, MOS call volume is running 4.5X the expected for midday action, with 29K contracts already traded. May 50 and Sep 55 calls are the most actives. The gains in the sector come two days before a BMO Capital Markets Agricultural, Protein, and Fertilizer Conference. MOS, POT, IPI, and DHR will be presenting.

Advanced Micro (AMD) is seeing a second day of bullish order flow. Call volume jumped yesterday after Reuters reported the rival Intel (INTC) might face an adverse ruling in an EU anti-trust matter Wednesday. AMD is up another 19 cents to $4.41 and 24K calls traded, compared to 1,425 puts. More than half of the volume is on the ISE, where sentiment data point to 75 percent opening customer buys. June 5 calls are the most actives, with 11.4K traded.

Bearish Flow

UPS (UPS) is off $1.63 to $54.20 and options volume is running 4X the usual. Most of the activity is on the put side of the options chain and includes 38K May 55 puts on the bid for $1.85, 20K June 55 puts ask-side for $3.40, and 20K July 55 puts ask-side for $4.10. All traded on the ISE where sentiment data indicate that 40K were opening customer buys. If so, it appears to be a position adjustment or a roll, where the strategist sold-to-close a losing position in May puts accumulated in mid-April (and just before earnings) and bought to open similar positions in June and July. The activity looks like a straight bearish bet or perhaps the hedge of a stock position.

Implied Volatility Movers

Select Sector Financials (XLF) is seeing heavy trading today. XLF hit a low of $11.62 and, between yesterday and today, had erased more than half of last week's big gains. In the options, trading is active, with 212,000 puts and 149,000 calls traded on the XLF. Implied volatility is back up to the mid-60s from about 60 the day before. However, it remains well below the record highs around 130 set in mid-November.

Implied volatility is also higher in PNC, National Financial Partners (NFP), and Geron (GERN). Meanwhile, implied volatility is lower in MBIA (MBI), General Motors (GM), and Ctrip.com (CTRP).