Sentiment
Stocks shrugged off early weakness and poor housing data to trade broadly higher late Thursday. Data released before the bell showed orders for durable goods increasing by 1.9 percent last month. Economists were looking for an increase of .5 percent. However, March numbers were revised down to -2.1 percent from -.8 percent.
The major averages opened steady on the mixed economic news, but then suffered a setback after home sales data showed an improvement of only .3 percent in April. Separate data revealed a record 12 percent of mortgage holders were behind or in foreclosure in the first quarter.
The bearish housing data sent the Dow to a low of 8,247 in morning trading, but the selling never really gathered any momentum and the industrial average bounced higher by midday. Then, shortly after 1:00 Eastern Time, the major averages found some late day strength after the latest auction of Treasury notes was met with adequate buying interest. In contrast to Wednesday, when poor results sent both stocks and bonds reeling, the benchmark ten-year Treasury bond held steady and finished the day with modest gains.
Investors seemed to find solace in the action in the bond pits and the Dow moved to session highs in afternoon trading. With 30 minutes left to trade, the Dow is up 92 points to 8,392. The CBOE Volatility Index (.VIX) slipped back .53 to 31.83. Approximately 5 million puts and 6.3 million calls traded so far.
Bullish Flow
Savient Pharmaceuticals (SVNT) is off 15 cents to $5.75 and 24K calls traded on the biotech company, compared to 4,600 puts. Today's call volume represents almost 8X (777 percent) the expected for midday. The top trade of the day is 7000 July calls on the bid for 50 cents. Top trades also include 5000 July 7.5 - 10 call spreads for 55 cents on the PHLX, which initiated by a buyer, according to an exchange floor contact. Implied volatility is little changed today, but remains extremely elevated at 255 percent.
Select Sector Homebuilders (XHB) is down 32 cents to $11.71 and XHB Sep 15 and 17 calls saw action early after a player bought 25K call spreads for 30 cents (bought Sep 15s and sold Sep 17s). It could be a roll down from the 17s, but seems to reflect a bullish view on the exchange-traded fund. It's also noteworthy because it happened ahead of new home sales numbers. Seems to have been a bad bet, as shares of the homebuilders fell when the numbers were released.
Bearish Flow
Market Vectors Gold Mining Fund (GDX) is up $1.90 to $43.12 after gold gains $7.50 to $962.70 an ounce. In the options market, GDX volume is running 2X normal, with 50K puts and 21K calls traded. The top trade of the day is 29.8K Sep 28 calls for an average of 42.5 cents per contract on the ISE, which is an opening customer put buy, according to ISEE sentiment data. 32.6K now traded.
Large blocks of iShares Emerging Markets ETF (EEM) Sep puts and calls traded Thursday morning. With shares up 74 cents to $32.5 today, the most of the volume appears to be by one strategist, taking a bearish position in the Sep 23 - 28 put spread, while also selling Sep 36 calls. The total package traded 20K times on the PHLX this morning for 20 cents (credit). 50K now traded in all three contracts.
Implied Volatility Movers
Moody's (MCO) fell 8 percent to $25.85 after a fund manager said AAA ratings are a "curse" and he is betting against credit rating agency Moody's. Shares tumbled and put volume jumped Thursday. Implied volatility rallied to 62, from about 49 late Wednesday.
Implied volatility is also higher in RF (RF), Dell Computer (DELL), and Hartford (HIG). Meanwhile, implied volatility is lower in Costco (COST), Heinz (HNZ), and Applied Materials (AMAT).
