Wednesday's Options Recap

Sentiment

Stocks opened steady in morning action after a 4 percent gain in Hong Kong's Hang Seng led Asia's markets upward and stock indexes were moving broadly higher in Europe as well. Rallying commodity prices, including crude oil above $71 a barrel, seemed to reflect the view that an economic recovery is underway.

However, the morning rally quickly stalled, as some of the investor focus shifted to happenings in the bond pits, where the yield on the benchmark ten-year Treasury bond made a decisive move to 7 month highs. Then, shortly after a poor showing at an auction of ten-year Treasury notes, bonds sank further and the yield on the ten-year moved up to the 4 percent "psyche" level.

The volatility in the bond pits seemed to spill over into the equity market and, after reaching highs near 8,835 early, the Dow Jones Industrial Average had fallen to a low of 8,640, or almost 200 points off its best levels. The industrial average is down 90 points heading into the final 45 minutes of trading. The sell-off is broad, with 27 of the Dow thirty lower, but none are down more than 2.5 percent.

The CBOE Volatility Index (.VIX) is up .84 to 29.11, but remains below the 30 "psyche" level, as the equity market decline has been orderly thus far. Trading volume in the options market is picking up, with approximately 8.7 million calls along with 5.5 million puts traded on the session.

Bullish Flow

Volume surged in NVidia (NVDA) Wednesday! 129,000 contracts traded, compared to 9,300 puts. Today's call volume represents 17X the normal and is largely the result of action by one trader: selling 10K June 11 calls and 43K June 12.5 calls while also buying 60K July 12 calls. This massive call buyer is probably closing out a position in the June options (which expire in 9 days) opened late-May/early-June and extending an optimistic view by opening a bullish position in July 12 calls. 37 days remain until the July expiration.

AK Steel (AKS) is showing relative strength and increasing call volume. Shares are up 58 cents to $19.68 and 18K calls traded, or about 3X the number of puts. Morning trades include 4,400 June 17.5 - 20 calls, which are possibly closing spreads. More recent trades include a sweep of 4,697 July 25 calls at the offer for 65 cents, which appear to be an opening call buy. Implied volatility is elevated, at 87, up from about 85 yesterday. Keybanc analysts said today that they see improved pricing and demand in US flat rolled steel. Raised their price target on AKS. Earnings due out July 21.

Bearish Flow

SPDR Homebuilders Trust (XHB) is down 18 cents to $12.43 and 15K June 12 puts traded. More than 12K traded on the ISE, where sentiment data indicate opening customer buy orders. Implied volatility is above 50, from 49 yesterday. Housing starts numbers are due out Tuesday, June 16, and the heightened put volume might reflect some uncertainty about the outlook for the homebuilders. XHB is an exchange-traded fund that holds shares in two dozen housing and homebuilding stocks.

Currency Shares Euro Trust (FXE) is down $1.12 to $139.65 and not far from session lows after a poor auction of ten-year Treasurys sent bond yields and the dollar higher. The euro is under pressure and FXE, which tracks the EU/USD currency pair X 100, is seeing a third day of increasing put volume. 6,767 contracts traded, compared to 225 calls. July 138 puts are leading the flow, with some premium buyers probably positioning for the euro to dip below 1.38.

Implied Volatility Movers

Crocs (CROX) volume and volatility saw an decided uptick Wednesday. The company was presenting at a Piper Jaffrey Conference Wednesday. It isn't clear yet what was being said, but shares are up 35 cents to $3.60 and 10,000 calls traded, compared to less than 800 puts. Implied volatility moved up to 110, from about 107 the day before.

Implied volatility is also higher in Allos Therapeutics (ALTH), Melco Crown Entertainment (MPEL), and PNC (PNC). Implied volatility is lower in Sequenom (SQNM), Home Depot (HD), and Bank of America (BAC).