Sentiment
Stocks stabilized Tuesday after suffering steep losses the day before. Renewed worries about the global economic outlook sent the Dow Jones Industrial Average down 201 points Monday. With no hard news to guide the early action, the Dow opened modestly higher Tuesday morning.
Then, at 10:00 eastern time, the week's first economic stat motivated a modest amount of selling pressure. The report showed existing home sales at an annualized rate of 4.77 million in May; which was better than the 4.66 million seen the month before, but also below economist expectations of 4.82 million.
The Dow Jones Industrial Average slipped on the news, but had stabilized by midday. Trading turned mixed and remains somewhat cautious ahead of housing and durable goods data tomorrow morning. The Federal Reserve delivers its post-FOMC statement Wednesday afternoon. In the options market, trading is active, with approximately 45 minutes to traded and 5.4 million puts along with 5.4 million calls traded so far, a ratio of 1 (compared to a 22-day average of .76).
Bullish Flow
Investors are showing renewed interest in Ambac Financial (ABK) calls Tuesday. Shares of the debt insurance company are up 3 pennies to $1.05 and options volume is running 25X the normal. Most of the volume is in January 2010 calls at the 2.5 strike. One player bought 17,000 contracts for an average of 27.5 cents. This might close an existing position, as open interest is about 18K. However, 21.3K contracts have now traded total and 83 percent trading ask-side. In addition, implied volatility is up big, to 184 from about 130 the day before.
Oracle (ORCL) options are busy. Interest in the July 20 straddle picked up early in the session. July 21 calls are now the most actives, with 20.5K traded, compared to 17K of existing open interest. The top two trades are 4,680 and 4,133 contracts at the offer for 40 cents, which are possibly closing trades. Nevertheless, sentiment seems somewhat bullish, with 41K calls and 29K puts traded so far. Meanwhile, an implied volatility skew between July and August options hints at a possible earnings gap move of $1.44, or 7.2 percent, when the software giant reports after the closing bell.
Bearish Flow
Put volume spiked in Expedia (EXPE) Tuesday morning. The surge in interest follows chatter that Stansberry Research recommended buying Expedia July 15 puts for up to 95 cents this morning. Nearly 8,000 contracts traded in the past 16 minutes, from 75 to 95 cents, as shares have drifted lower and fall to their lowest levels in four weeks. ISE data confirms mostly customer buying-to-open, largest block was 500 for 80 cents just after 10:07 a.m. when shares were near $15.49.
Implied Volatility Movers
The CBOE Volatility Index (.VIX) is easing a bit Tuesday. The market's "fear gauge" jumped more than 3 points Monday, but was recently down .69 to 30.48. The forward-looking VIX indicator closed at multi-month lows below 28 Friday, but could begin to move higher going forward, as July has been a volatile month for the equity market in recent years.
Implied volatility is also lower in Kroger (KR), the Qs (QQQQ), and the Select Sector Financials (XLF). Meanwhile, implied volatility is higher in Rambus (RMBS), Hartford (HIG) and ABK.
