Monday Options Recap

Sentiment

The major averages slipped Monday morning amid concerns about weakness in China and cautious trading ahead of key economic data later this week. China's Shanghai lost another 6.7 percent Monday and suffered its second biggest monthly loss ever. Other markets in the Asia/Pacific and Europe were mostly lower before the start of trading in New York.

The tone of trading remains cautious late Monday, as the historically volatile month of September begins tomorrow and ahead of key economic data later this week. Construction spending and auto sales are due out tomorrow. Investors get a peek at the August employment situation courtesy ADP private's sector report Wednesday. The Labor Department's monthly jobs data are due out Friday.

The only economic data released Monday seemed to be largely overlooked. The Chicago PMI, a gauge of regional manufacturing activity, improved to 50 in August, up from 43.4 last month and better than the 48 economists had predicted.

Trading remains cautious and risk perceptions are rising. The Dow is down 80 points heading into the final hour. The CBOE Volatility Index (.VIX) jumped 1.40 to 26.16. Approximately 4.25 million puts and 4.4 million calls traded so far (a ratio of .97, compared to a 22-day average of .79.)

Bullish Flow

Patterson UTI (PTEN) is down 56 cents to $13.16 and some players are showing interest in Sep and Oct 15 calls after Baker Hughes (BHI) bought BJ Services (BJS), sparking speculation that rival Halliburton (HAL) might make a bid for PTEN. Shares aren't reacting, but options are active as the speculation makes the rounds Monday.

Heavy trading continues in Etrade (ETFC). Open interest in ETFC calls increased by an impressive 54K contracts after active trading Friday (compared to +5083 puts). Shares are up 23 cents to $1.87 midday, with another 38K calls traded, compared to only 1,400 puts. Sep 2, Oct 2, and Jan10 2.5 calls are the most actives, with buyers dominating the action and looking for more upside in Etrade. News today: Citadel terminated its 10b5-1 stock trading plans and no sale of ETFC common stock had been made under the plan.

Bearish Flow

Large print in SLM (SLM) today after an investor bought 55K Jan10 $5 puts for 30 cents and sold 12K Jan10 $12 calls for $1.05. The options were tied to shares (probably the 1.1 million traded earlier today for $8.84 and the 1.5 million that just hit for $8.95). These trades might close an existing position, as volume doesn't exceed open interest in either the puts or calls. SLM is down 13 cents to $8.84 and average implied volatility is up to 67, from about 63.5 yesterday (52-week high and low = 206 and 61).

Implied Volatility Movers

Satyam Computers (SAY) is up 80 cents to $6.28 and some players appear to be looking for additional upside, with active trading in Sep and Oct 7.5 call options Monday. 5,590 Sep 7.5s traded, compared to open interest of 1847 of open interest. SAY implied vols jumped to 106, from about 80 late Friday.

Implied volatility is also higher in Sinovac Biotech (SVA), Spectrum Pharmaceuticals (SPPI), and Etrade (ETFC). Meanwhile, implied volatility is easing in BJ Services (BJS), Tessara Tech (TSRA), and Marvel Entertainment (MVL).