Thursday's Options Recap

Sentiment

Stocks slipped in early trading, but the early weakness was short-lived and the major averages are sporting modest gains for the third day this week. Economic data was in focus early after the Labor Department said weekly jobless claims fell 26,000 to 550,000 in the first week of September, which was better than the 16,000 drop economists had predicted. A separate report showed the showed the nation's trade balance widening to $32 bln in July, more than the -27.5 bln in June and economist forecasts of -27.5 bln.

The economic numbers didn't seem to matter much, as after two days of gains, and a 106-point advance in the Dow Jones Industrial Average, the major averages fell into the red early.

However, buyers surfaced mid-morning and the major averages were once again in positive territory by midday. Gains in bonds after better-than-expected results from an auction of Treasurys and soothing words from Treasury Secretary Geithner seemed to help the equity market late in the day.

With about forty minutes left to trade, the Dow Jones Industrial Average is up 45 points. The CBOE Volatility Index (.VIX) is down .63 to 23.69. Trading in the options pits is active, with approximately 5.8 million puts and 7.7 million calls traded so far (a ratio of .75, compared to a 22-day average of .83.)

Bullish Flow

US Airways (LCC) and some of the other airlines are seeing interest after JP Morgan upgraded LCC to Neutral and UAL Corp. (UAUA) to Overweight. LCC is up 55 cents to $4.13 and Sep 4, Dec 5, and Oct 5 calls are seeing early interest. UAUA gained $1.37 to $7.82 and 12K calls along with 5350 puts traded. Delta (DAL) is up 64 cents to $7.97 and 9200 calls along with 460 puts traded. Continental (CAL) rose $1.16 to $14.87 and 17K calls changed hands, compared to 1650 puts.

Options activity is picking up in MEMC (WFR). Shares are up 58 cents to $17.08 and recent trades include two blocks totaling 5000 Oct 17.5 calls at the offer for $1 and $1.05. 15.6K now traded, compared to open interest of 8,174. Another 13.6K Sep 17 calls traded, some might be closing because the contract saw active trading last week and has OI of 22.75K. Shares sank Tuesday after MEMC lowered earnings guidance, but has recovered the losses over the past two days and now at two-week highs.

Bearish Flow

Monsanto (MON) is seeing heavy trading this morning. Shares are down $5 to $78.48 after the company issued downside guidance for 2009 and 2010. 18K puts and 12K calls traded so far, 2X the average daily. Oct 70 and Sep 75 puts are the most actives. Average implied vols in MON is up to 38 (+3), compared to a 52-week high and low of 104 and 30.3.

Implied Volatility Movers

CBOE Volatility Index (.VIX) is down .67 to 23.65 and made a run to 22.86 Thursday. At that level, VIX is below its July 24 closing low of 23.09, which was a multi-month closing low. The decline in the "fear gauge" comes as the S&P 500 rallies 8 points and to new multi-month highs.

Implied volatility is also lower in Talbot's (TLB), Navistar (NAV), and Vivus (VVUS). Meanwhile, implied volatility is higher in MetroPCS (PCS), BioMarin (BMRN), and Monsanto (MON).