Monday's Options Recap

Sentiment

Volatility picked up following a round of disappointing economic data Monday. A report released before the bell showed manufacturing activity in the Northeast falling more than expected in June. To be specific, the NY Empire State Index fell to -9.41 in June, down from 4.55 in May and also below consensus estimates of -5.10.

Stock index futures had fallen into the red prior to manufacturing data after overseas equity markets slumped and commodities came under pressure. Crude oil is down $1.81 to $70.23 and gold gave up $12.10 to $928.60. The decline is weighing on many of the oil, metal and mining names. Alcoa (AA), for example, is down 6.5 percent and the biggest loser in the Dow Jones Industrial Average. 28 other Dow stocks are also lower (only AXP in the black) and the Dow Jones Industrial Average is down 210 points heading into the final hour of trading.

Anxiety levels are higher. The CBOE Volatility Index (.VIX), which closed at 8-month low of 28.11 Thursday, is up 2.90 to 31.05. Trading in the options market is picking up from Friday's lackluster pace. Approximately 5.8 million puts along with 6.3 million calls traded on the session, a ratio of .92 (compared to a 22-day average of .77.)

Bullish Flow

Rambus (RMBS) has been ripping it up over the past two days and some traders are looking for the stock to run even higher. RMBS rallied 15.25 percent Friday on news the chipmaker reached a settlement with EU anti-trust regulators. Shares are up another $1.07 to $18.46 today and 24K calls traded, compared to 3,700 puts. Action is scattered across June calls with strikes ranging from 18 to 22.5. Some investors are likely closing out positions ahead of this week's expiration.

Bearish Flow

SPDR Homebuilders Trust (XHB) is down 42 cents to $11.72 and hit session lows ($11.66) after the latest homebuilders sentiment index [HMI] from NAHB showed a surprise 1 point decline to 15 in June (Link to chart on web site.) Consensus was for a 1-point increase to 17. XHB faltered. About thee hours earlier, one options trader apparently bought 10000 July 11 puts on the ETF; probably rolling out of a similar position in June 12 puts, which also traded 10000X and expire at the end of this week.

Implied Volatility Movers

Smithfields Foods (SFD) implied volatility is higher ahead of earnings tomorrow before the bell. Trading in the options market is brisk, with 11,000 calls and 3,900 puts traded. June 12.5 calls lead the order flow. Implied volatility is up to 87, from about 78 late Friday.

Implied volatility is also higher in Rambus (RMBS), Savient Pharmaceuticals (SVNT), and Best Buy (BBY). Implied volatility is lower in La-Z-Boy (LZB), Citi (C), and the iShares Long-term Bond Fund (TLT).