Thursday Options Recap

Sentiment

Stocks are holding modest gains in a day of relatively quiet market action Thursday. Stock index futures edged higher in the pre-market after the Labor Department reported that weekly jobless claims fell by 4,000 in the final week of August. Economists were looking for a bigger decline of 10,000, but stock index futures edged higher on the news -- perhaps because the decline in filings comes just one day before the Labor Department releases key payroll data. Economists expect tomorrow's monthly report to show the US economy losing 225,000 jobs in August.

Meanwhile, a number of retailers, like Gap Stores (GPS), Costco (COST), and Target (TGT), moved higher after monthly sales numbers were less bad than some analysts feared.

In the end, the day's news seemed mildly supportive, but the tone of trading remains cautious ahead of Friday's jobs data and the three-day Labor Day weekend. The Dow Jones Industrial Average has traded in a narrow 80-point range and, with 45 minutes left to trade, is up 15 points. The CBOE Volatility Index (.VIX) fell 1.50 to 27.40. Trading is slowing a bit, with approximately 4.9 million puts and 5.1 million calls traded so far (a ratio of .97, compared to a 22-day average of .81.)

Bullish Flow

Cubist Pharmaceuticals (CBST) jumped 41 cents to $20.56 early and options volume quickly picked up to 5X the usual, with 7,900 calls and 312 puts traded in the morning session. Sep 22.5 calls were the most actives. 5320 traded, 59 percent hitting ask-side and existing open interest of 1701. ISEE (78 percent or 1945 calls) is consistent with opening customer buyers.

Hecla Mining (HL) continues to see active trading, with another 8,200 calls traded (6X the expected and almost 10X the number of puts). Shares are up 22 cents to $3.34 and investors are showing interest in Dec 4, Jan10 2.5, Sep 4, and Jan11 2.5 calls.

Bearish Flow

Moody's (MCO) and McGraw Hills (MHP) are under pressure after a court ruled against the two companies. Bloomberg reports that a judge rejected arguments that investors can't sue over deceptive ratings. MHP, owners of Standard & Poor's, is now down $2.38 to $29.93 and options volume is running 9X the usual. Investors are looking for additional downside in Sep 30, Sep 25, and Oct 25 puts.

Implied Volatility Movers

Implied volatility in Moody's (MCO) jumped after a judge ruled against the company Thursday (see Bearish Flow). Shares are down almost 10 percent, to $23.52, and implied volatility is up to 56, from about 45 late Wednesday.

Implied volatility is also higher in McGraw-Hill (MHP), Elan (ELN), and Liz Claiborne (LIZ). Meanwhile, implied volatility is easing in Gap Stores (GPS), Citi (C), and the S&P 500 Index (SPX).