Thursday's Options Recap

Sentiment

Stocks are broadly higher on upbeat earnings news and good results from the latest auction of Treasury notes. The day was off to a sluggish start after the Labor Department reported that weekly jobless claims increased by 15,000 to 627,000 in the week ended June 20. Economists were looking for a decline to 600,000.

The Dow dipped into the red early, but then found support in morning trading and began a move back into positive territory. Better-than-expected earnings lifted a number of consumer-related stocks including Nike (NKE) and Bed, Bath and Beyond (BBBY). Homebuilder Lennar (LEN) is enjoying a 16.4 percent post-earnings rally.

The morning gains were extended midday after bonds rallied on news of strong global demand at an auction of 7 year notes. The benchmark ten-year surged more than 1 point and its yield fell to 3.55 percent, down from 3.68 percent a day earlier. Meanwhile, strength across the commodities markets is giving energy, metal and mining names a boost. Crude oil is up $1.63 to $70.30 a barrel and gold gained $4.40 to $938.80 an ounce.

The Dow Jones Industrial Average gained 160 points and the NASDAQ is up 32 points heading into the final forty-five minutes of trading. The CBOE Volatility Index (.VIX) is down 2.04 to 27.01 and on pace to close at new multi-month lows. Approximately 4.9 million puts along with 5.3 million calls traded so far, a ratio of .93 (compared to a 22-day average of .75).

Bullish Flow

Legg Mason (LM) hit a high of $26.74 today, but was recently moving back towards $25 after the Wall Street Journal reported that Nelson Peltz has not accumulated a position in the asset manager. The report comes the day after British paper The Telegraph said Peltz had secretly purchased 9 percent of the company and was seeking to oust some of the firm's senior management. Heavy trading in the options market continues, with 14,000 calls and 5,450 puts traded. Implied volatility is little changed around 65.

Genworth (GNW) is up a penny to $6.58 and 3,550 July 7.5 calls traded. 92 percent hit at the offer and, while existing open interest is 9,900 contracts, ISEE sentiment numbers (47 percent or 1,100 contracts) indicate that some investors are buying-to-open–possibly looking for a move beyond $7.5 by the July expiration (22 days). Implied volatility is up to 94, from about 92 yesterday.

Bearish Flow

French pharmaceutical maker Sanofi Aventis (SNY) has seen two days of bearish order flow. August 32.5 puts were busy Wednesday. Today, the stock is down $1.59 to $30.25 and another 7,500 puts traded, compared to 250 calls. July 30 puts are the most actives and the top two trades (1000 ea.) hit bid-side for 90 and 95 cents on the PHLX, but were put purchases, according to a contact on the floor. 5,200 now traded. Looks like buyers of August 30 puts as well. Implied volatility is moving above 40, up from 36.5 yesterday. The bearish flow comes on the heels of a WSJ story that said SNY will dive into generic drugs and cut research spending.

Implied Volatility Movers

Spyders (SPY) are up $1.54 to $91.66 Thursday and SPY July 90 puts are the day's most actively traded options contract. 133K contracts traded and about two-thirds hit ask-side. The top trades of the day include large blocks on the ISE for between $1.40 to $1.48 and appear to be opening customer put buyers. ISEE sentiment data indicate 110K puts, or 71 percent of the SPY puts traded on the ISE today, are opening customer buys. Like the VIX, which is falling to multi-month lows, SPY implied volatility is down 2.04 to 24.75 and some investors might be taking advantage of the recent decline to buy some portfolio protection.

Implied volatility is also lower in Nike (NKE), Bed, Bath and Beyond (BBBY), and Lennar (LEN). Meanwhile, implied volatility is higher in Micron Technology (MU), Valassis Communications (VCI), and Teck Cominco (TCK).