Monday's Options Recap

Sentiment

Stocks are lower on renewed concerns about the broader economic outlook Monday. The Dow Jones Industrial Average opened lower after the World Bank trimmed its forecast for 2009 economic growth. The bank now expects the global economy to shrink by 2.9 percent this year, down from its initial forecast of -1.7 percent.

Equity markets in Europe and some key commodities slumped before the exchanges opened in New York. France's CAC 40 and Germany's DAX fell 3 percent. Meanwhile, Copper and aluminum both lost nearly 4 percent. Crude oil slipped and was recently trading down $2.63 to $67.40 a barrel. Gold fell $14 to $922.20 an ounce.

With no economic data on the calendar and not much earnings news to guide the US market, stocks faltered early and never recovered. The Dow Jones Industrial Average is down 170 points heading into the final 45 minutes of trading. After closing at 8 month lows Friday, the CBOE Volatility Index (.VIX) bounced back and is up 3.20 to 31.19. Trading in the options market is active, with 5.7 million puts and 6.5 million calls trade so far, a ratio of .88 (compared to a 22-day average of .75).

Bullish Flow

Houston-based oil driller Smith International (SII) is down $1.29 to $25.22, as a pullback in crude oil weighs on the drillers Monday. Crude was recently down $2.42 to $67.13 a barrel. However, while SII shares are falling, sentiment seems bullish. July 30 calls are the most actives, with 3,250 traded and 80 percent of today's volume hitting ask-side. Another 1,290 July 37.5 calls traded, with 70 percent traded ask-side. While today's volume doesn't yet exceed open interest, ISEE sentiment data indicate that some customers are buying to open. Implied volatility is up to 62, from about 58 late Friday.

Another interesting note about the recent activity in SII, on June 12th, when shares were trading for $30.50, put buyers were active in the oil driller and positioning for shares to move lower. The timing was good because shares are down 17.6 percent since that time.

Bearish Flow

Players in the options market are bracing for some potential volatility in Chico's FAS (CHS) ahead of a June 26 meeting with analysts. Shares of the Fort Myers, FL apparel retailer are down 53 cents to $9.63 and options volume is running twice the usual, with active trading seen in July 10 puts. 5,000 traded and ISEE sentiment data indicate that about half of today's trades on ISE (2,400 contracts) are opening customer buys. Meanwhile, the increasing demand for premium is sending implied volatility to 71, up from about 64.5 late Friday.

Implied Volatility Movers

Medarex (MEDX) shares rallied and implied volatility jumped after the company said one of a single dose of an experimental drug was successful in fighting prostate cancer. MEDX is up 17 percent to $8.62 and implied volatility jumped to 80, from about 60 late Friday.

Implied volatility is also higher across the equity market including BofA (BAC), Akamai (AKAM), and the S&P 500 (SPX). Meanwhile, implied volatility is lower in Walgreens (WAG) and Citi (C).