Monday Options Recap

Sentiment

Stocks are trading broadly higher, as CIT Group (CIT) battles back from the brink of bankruptcy and the day's only economic stat surpassed economist projections. CIT is up 56 cents to $1.26 and well off last week's lows of only 31 cents per share after the Wall Street Journal reported the company has secured $3 billion in much needed capital. The news seemed to lift a cloud from over the financials and the Select Sector Financial (XLF) is up 6 cents to $12.20.

Meanwhile, the only economic report on the calendar until Thursday -- the List of Leading Economic Indicators -- rose .7 percent in June. While not stellar, the increase was better than economists had expected. The major averages opened steady and early gains were extended when the data were released at 10:00 a.m. eastern time.

Since that time, the major averages have chopped mostly sideways in uneventful action. The Dow Jones Industrial Average has traded in a narrow 81-point range today and is up 68 points heading into the final hour. The CBOE Volatility Index (.VIX) is up .20 from a 9-month closing low of 23.34 Friday. Trading in the options market is active, with 5.5 million puts and 7.2 million calls traded, a ratio of .76 (compared to a 22-day average of .78).

Bullish Flow

MBIA (MBI) is up 28 cents to $4.25 and 3,720 November 5 calls traded. 98 percent hit ask-side of the bid-ask spread and open interest is 481, suggesting opening call buying. Some of the larger trades hit on the ISE and are not customer driven, according to sentiment data. So, it might be a broker-dealer buyer. Nevertheless, the overall action seems to reflect a bullish view on MBI from now until mid-November. No news on the stock and MBI might be moving up in sympathy with CIT.

Bearish Flow

CIT Group (CIT) is up 58 cents to $1.28 and implied volatility has fallen sharply after the Wall Street Journal reported the co. has secured $3 billion in capital from small and medium sized firms. The news seems to have eased some of the concerns about bankruptcy, which sent shares to a low of 31 cents last week. Implied volatility has fallen back to 290, down from more than 400 the day before. However, uncertainty remains and August 1 puts are the most actives. In addition, on the ISE, where about 40 percent of today's CIT contracts have traded, sentiment data indicate that 71 percent of the puts, or 15K contracts, have been bought-to-open so far today.

Implied Volatility Movers

Allos Therapeutics (ALTH) is down 3.8 percent to $7.80 and implied volatility rallied Monday. Most of the options activity was in the September 5 puts and seemed to reflect a bearish or defensive view on the biotech company. Meanwhile, implied volatility jumped to 89, up from about 63 late Friday.

Implied volatility is also higher in Excel Maritime (EXM), Harman (HAR), and Texas Instruments (TXN). Meanwhile, implied volatility is lower in Weatherford (WFT), Halliburton (HAL), and CIT.

Comments

[HipHoption:]

Interesting trade today in EWJ (a Japanese ETF). Customer sold 25,000 August 9 puts to buy 50,000 August 10 calls for even money, delta neutral (vs 9.35, 75 delta). This is a leveraged bullish bet on Japanese stocks.

Jul 20 10:33 PM