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Sentiment

Stocks are broadly higher to start the third quarter 2009. The major averages held steady early following gains in overseas markets. China's Shanghai rose nearly 2 percent on better-than-expected manufacturing data and benchmarks across Europe were up 1 to 2 percent before the exchanges opened for trading in New York.

The morning advance was extended mid-morning after a round of mixed economic data motivated some buying interest. The numbers, released at 10:00 a.m. eastern time, showed construction spending falling a bit more than expected and manufacturing (ISM) improving less than expected. Pending home sales edged up .1 percent, however, which was better than economist forecasts. In the end, investors seemed relieved that the news wasn't worse and the Dow Jones Industrial Average is up 75 points heading into the final hour of trading.

Trading is slowing and likely to remain light tomorrow ahead of the three-day holiday weekend. Approximately 3.7 million puts and 4.5 million calls traded on the session, or about 70 percent the normal. The CBOE Volatility Index (.VIX) made a run below 25, but has made a move back to 25.86 (-.49) ahead of jobs data Thursday morning.

Bullish Flow

A number of biotech names are seeing interest Wednesday. Teva (NYSE:TEVA) is up 98 cents to $50.32 and notched a new 52-week high today after the FDA approved the company's abbreviated NDA to market a generic version of oral contraceptive, Ortho Try-Cylcen Lo. Shares are up and trading in the options market is brisk, with 14K calls and 12K puts changing hands. Implied volatility is low, at 21.5, but moving up from 20 yesterday, as premium buyers are driving a lot of the action. For example, on the ISE, where nearly 7000 calls traded, sentiment data point to 69 percent opening customer buyers (19 percent opening put buyers). Aug 50 calls and July 47.5 puts are the most actives. (Other biotechs seeing increasing options activity Wednesday: AMAG, MEDX, RPRX, HGSI).

Bearish Flow

Usec (NYSE:USU) is up a dime to $5.42 and options volume is running 21X the normal, with 103,000 puts traded, compared to 844 call options (chart). A big chunk of the volume is due to a July/Oct 5 put spread, which traded 47500X between brokers. Existing open interest in the July 5 puts is 48K, so the trade is a possible roll of puts (accumulated from early May to late June) from July to October. However, it doesn't end there, as both contracts have now traded more than 52000X and the August 5 puts are also seeing interest. Implied volatility is up, to 122.5, from about 117 yesterday and 110 Friday.

Implied Volatility Movers

AMAG Pharmaceuticals (NASDAQ:AMAG) shares are up $2.59 to $57.26 and implied volatility is down after the FDA approved Feraheme for the treatment of iron deficiency anemia in chronic kidney disease. Sellers of July 45 and 50 puts are leading the action in the options market, as AMAG bounces to a new 52-week high on the news. Implied volatility has imploded, to 42, from about 79 the day before.

Implied volatility is also lower in Oshkosh (NYSE:OSK), Navistar (NYSE:NAV), and Frontpoint (NASDAQ:FRPT). Meanwhile, implied volatility is higher in Sprint (NYSE:S), Akamai (NASDAQ:AKAM), and USU.

Source: Wednesday's Options Recap