Monday Options Recap

Sentiment

Stocks opened lower on falling commodity prices and slow trading in overseas markets Monday. Shares were broadly lower across Europe before the exchanges opened in New York. Meanwhile, crude oil fell 3.2 percent and gold lost some of its shine Monday as well. The weakness in commodities weighed on some of the energy, metals, and mining names. Meanwhile, Potash (POT) slipped after delivering an earnings warning due to slowing demand.

The only economic stat of the day showed the list of leading indicators gaining .6 percent in August, which was down from the .9 percent increase in July and fell a bit short of the .7 percent economists had predicted.

Yet, while the major averages slid in morning trading, a sell-off never materialized and trading turned mixed by midday. From there, not much has happened. The Dow Jones Industrial Average is down 37 points heading into the final forty-five minutes of trading, but the NASDAQ added 5. The CBOE Volatility Index (.VIX) gave up early gains and is down .07 to 23.85. Trading in the options market remains active, with approximately 4.7 million puts and 5.75 million calls traded so far (a ratio of .82, compared to a 22-day average of .77)

Bullish Flow

Lowe's (LOW) is up 14 cents to $22.11 and calls are active ahead of the company's Analyst & Investor Conference, which kicks off tomorrow at 10:00 a.m. eastern. Today's trades include a sweep of 8900 Oct 24 calls at the offer for 20 cents. Data suggest a non-customer buyer. 11.4K now traded (vs. 3.9K of open interest), with 90 percent hitting ask-side. Average implied volatility in LOW is 35.5 (+1), compared to a 52-week high and low of 102 and 32.8.

eTrade (ETFC) is up 8 cents to $1.92 and made a run to session highs on increasing volume. Recent options trades include a sweep of 6488 Oct 2 calls at the offer for 15 cents. Nov 2 calls are the most actives. More than 21K traded, including a block of 13.7K bid-side for 20 cents.

Bearish Flow

McGraw-Hill (MHP) is off 68 cents to $26.13 and hit four-month lows Monday. In the options market, some players seem to be bracing for additional downside in the near future and are opening positions in MHP Oct 25 and 22.5 puts. The top trade is 809 Oct 22.5 puts for 40 cents on the ISE this morning, which is an opening customer buyer, according to sentiment data. Some of the activity might be rolling down out of the 25s, as 3279 Oct 25 puts traded, compared to open interest of 3278.

Implied Volatility Movers

AIG (AIG) is up $4.31 to $44.22 and saw a morning spike after Bloomberg reported that AIG's rescue package might be eased again. After being revised three times in the past year, the rescue package would be eased again under a plan being pushed by a House Oversight and Gov't Reform Committee leader. While shares are rallying, sentiment in the options market seems mixed at best. Oct 20 puts are the most actives, with 11.1K traded, vs open interest of 8.1K. Implied volatility (average) is on the move, to 122, from about 106.5 late Friday.

Implied volatility is also higher in Tellabs (TLAB), Citi (C), and Under Armour (UA). Implied volatility is easing in Lennar (LEN), GE (GE), and Perot Systems (PER).