Sentiment
Stocks are holding modest gains in a day of relatively uneventful market action Wednesday. After a 56-point gain Tuesday, the Dow Jones Industrial Average opened modestly higher, but with no economic data and no earnings of broad market significance to guide the action one way or the other. A modest morning rally developed with help from some of the energy-related names after crude oil added another 39 cents to $71.49 a barrel.
However, the major averages came off their best levels of the day following the release of the latest Beige Book from the Federal Reserve, which noted some signs of stabilization in economic activity and improvement in real estate markets. Maybe some investors were expecting a more upbeat assessment of economic conditions because the Dow Jones Industrial Average suffered a modest pullback on the news.
Trading has been relatively uneventful, however. The Dow Jones Industrial Average ha traded in a 101-point range and is up 13 heading into the final hour of trading. The CBOE Volatility Index (.VIX) slipped .77 to 24.85. Trading in the options pits is active, with approximately 5.6 million puts and 6.7 million calls traded so far (a ratio of .82, compared to a 22-day average of .83.)
Bullish Flow
MGM (MGM) is up 74 cents to $10.15 and options volume is running 3X the average daily, the day after the Wall Street Journal reported the co. is seeing "profound" improvement in its sruggling casino in Macau this summer. Shares have been grinding higher and 46K calls along with 11K puts traded. The activity includes 3200 Sep - Jan10 call spreads, which traded for $1.55 and is perhaps a roll of a bullish position from Sep to Jan 2010. The top two trades seem to reflect different views about the stock: 4000 Sep 11 calls at the offer for 25 cents and 4000 Jan(2011) 2.5 puts at the offer for 35 cents (traded at diff. times, diff exchanges.)
Cardinal Health (CAH) is up 89 cents to $27.16 and the Sep 35 - Oct 25 call spread trades 15000X. It was bought for an average of 82.5 cents and is probably a roll (sell to close September) from one month to the next, down in strikes. September options come off the board in 9 days.
Bearish Flow
Smithfield Foods (SFD) is up 16 cents to $12.92, the day after reporting earnings and the day before the co. presents at the Barclay's Back-to-School Consumer Conference (Thursday, a.m.). In the options market, total volume is running 3X normal on increasing interest in long-term (Jan 2011) 7.5 puts. Almost 11K traded, compared to open interest of 141 contracts. 69 percent hit ask-side. Might be part of a long stock/puts strategy, as several blocks of SFD shares also traded Wednesday morning.
Implied Volatility Movers
Implied volatility is falling in K12 (LRN) after the company reported a quarterly loss of a penny per share, which was a penny better than Street estimates. However, revenues fell short of estimates, and LRN is down 12.8 percent to $16.57. Nevertheless, implied volatility is falling now that earnings have passed -- down to 59, from about 69 late Tuesday.
Implied volatility is also lower in Talbot's (TLB), Vivius (VVUS), and Hutchinson Tech (HTCH). Meanwhile, implied volatility is higher in Dryships (DRYS), Ciena (CIEN), and Titanium Metals (TIE).
