Thursday Options Recap

Sentiment

Stock index futures moved higher early — the day after the Dow Jones Industrial Average gained 120 points on soothing words from the Federal Reserve. At the conclusion of its two-day meeting Wednesday, the Fed noted the economy was showing some signs of stability, but that inflation and interest rates were likely to remain low for quite some time. Overseas equity markets rallied around the idea and the gains in global markets set a positive tone for trading in the US Thursday morning.

However, stock index futures came off their best levels following a round of surprisingly weak economic data. A report on retail sales showed an unexpected dip of .1 percent in July, which was below the .8 percent in June and also significantly worse than the .8 percent economists were expecting. Meanwhile, weekly jobless claims rose by 4,000 to 558,000 last week, according to the Labor Department. Economists were looking for a decline of 9,000.

The weak data weighed on the equity market early, but the major averages battled back and are little changed mid-morning. The Dow Jones Industrial Average battled back to positive territory midday, but the familiar pattern of mixed and narrow trading returned late Thursday. The Dow has traded in a 101-point range today and is up 3 points heading into the final 90 minutes of trading. The CBOE Volatility Index (.VIX), which has found a new home in the mid-20s, is down .13 to 25.32. Approximately 4.4 million puts and 5.4 million calls traded, a ratio of .82 (compared to a 22 day average of .79).

Bullish Flow

Sandridge Energy (SD), an Oklahoma City based oil and gas drilling co., is up 66 cents to $12.38 and has added 8 percent since buyers of Sept 12.5 calls surfaced in the name Monday. Today, options volume is running 4X the expected for midday and activity is being seen in Sep 15, Sep 12.5, and Dec 17.5 calls. 4,400 calls traded total, compared to 810 puts, and directional sentiment based on the total order flow is 75 percent bullish.

Superior Energy Services (SPN), a New Orleans-based oil services co., is up 49 cents to $18.32 and options volume is running 20X the normal. Most of the activity is related to one three-legged strategy, where an investor apparently bought 2500 Dec 22.5 calls for 78 cents and sold the same number of 15 - 17.5 put spreads for 83 cents. All traded on the ISE, where sentiment data confirm the calls (and half the puts) are opening customer buys.

Bearish Flow

Overseas Shipholding (OSG) is up 98 cents to $37.46 and options volume is running 2X the daily average, 2,700 puts and 200 calls traded so far. The top trade of the day is 579 Oct 40 puts on the ISE for $4.60–which is an opening customer buyer, according to sentiment data. 1686 contracts, or 95 percent of the OSG puts traded on the ISE, are opening customer buys. Looks like buyers of Sept and Oct 40 puts on the CBOE and PHLX as well.

Implied Volatility Movers

Wal-Mart (WMT) shares moved higher Thursday after the world's largest retailer reported quarterly earnings of 88 cents per share, which was 2 cents better than Street estimates. Implied volatility fell below 20 percent and a new 52-week low.

Implied volatility is also lower in Dr. Pepper Snapple (DPS), Urban Outfitters (URBN), and Netease (NTES). Implied volatility is higher in Lam Research (LRCX), RedHat (RHT), and Emulex (ELX).