Tuesday's Options Recap

Sentiment

Stocks are lower and volatility is higher on disappointing economic data and ahead of key "event risk" Wednesday and Thursday. Stocks sank in morning trading after a report on Consumer Confidence showed a decline to 49.3 in June, down from 54.9 before. The rocket scientists (aka economists) were expecting an increase to 55.3!

Stocks faltered, as news of eroding consumer confidence comes ahead of key economic data later in the week. Monthly jobs data are scheduled for Thursday, a day early due to the Fourth of July holiday (markets, banks, and government offices are closed Friday). A flood of market-moving information is due out Wednesday as well. In addition to economic data (ISM, construction spending, pending home sales), investors also get weekly oil inventory data and monthly auto/truck sales.

Trading has turned a bit more cautious ahead of the news. The Dow Jones Industrial Average is down 100 points heading into the final hour of trading. The CBOE Volatility Index (.VIX) hit a low near 25 early, but was recently up 1.57 to 26.92. Volume is up due to end-of-quarter position-squaring. Approximately 4.6 million puts and 5.1 million calls traded on the session, a ratio of .92 (compared to a 22-day average of .76).

Bullish Flow

Ford Motor (F) calls are seeing active trading for a second day ahead of monthly auto and truck sales numbers, due out tomorrow. Investors seem to expect good news. F shares are up a quarter to $6.03 and 48K calls traded, compared to 15K puts. July 6 and August 7 calls are the most actives, with (a combined) 31K traded and about 55 percent hitting ask-side. Similarly, ISEE sentiment data indicate that 57 percent of the calls traded on the ISE (or 7,800 contracts) are opening customer call buys.

Bearish Flow

Sina Corp (SINA) is down $1 to $29.31 and investors are buying puts on the Chinese Internet company Tuesday. Pacific Crest analysts downgraded SINA yesterday, saying Street estimates for 2009 and 2010 earnings are too high! They believe the company will struggle to maintain market share and Focus Media (FMCN) deal adds uncertainty. Sentiment in the options market is clearly defensive Tuesday, with 12,000 puts and only 325 calls traded (chart). Buyers of Sept 17.5 puts ARE leading the activity and possibly looking for a move below $17.50, or 40 percent, by the September expiration.

Implied Volatility Movers

Novavax (NVAX) implied volatility surged on news the company was selected by the Spanish government to provide vaccine for comprehensive program in Spain. NVAX is up 36 percent and implied volatility in the options rose to 173, from about 127 the day before.

Implied volatility is also higher in Cerner (CERN), Ford Motor (F), and SINA. Meanwhile, implied volatility is lower in H&R Block (HRB), Apollo Group (APOL), and Shnitzer Steel (SCHN).