Wednesday Options Recap

Sentiment

Stocks are trading higher and the Dow is making a run above 10,000 following a round of upbeat earnings and economic news Wednesday. Intel (INTC) shares are helping both the Dow Jones Industrial Average and the NASDAQ after the chipmaker reported quarterly earnings of 33 cents per share, which beat Street estimates by 6 cents. Meanwhile, JP Morgan (JPM) is up 3 percent and among the best gainers in the Dow after the bank reported 82 cents per share for the quarter, which trounced analyst estimates by 30 cents.

The day's economic news helped as well. Data released before the opening bell showed retail sales down 1.5 percent in September, which wasn't as bad as the 2.1 percent decline economists had predicted. Excluding autos, sales edged up .5 percent–compared to expectations for a .2 percent increase.

The Federal Reserve released minutes from their latest FOMC meeting Wednesday afternoon and the text included talk of improved economic activity, a slowing rate of joblessness, and subdued inflation. No surprises there.

Consequently, the Dow Jones Industrial Average was able to build on morning gains and is up 132 points to 10,003 heading into the final hour. The NAZ is up 27 and the CBOE Volatility Index (VIX) lost .38 to 22.61. Trading in the options market is running at a fast pace, with approximately 5.8 million puts and 9.1 million calls traded so far (a ratio of .63, compared to a 22-day average of .76).

Bullish Flow

Pfizer (PFE) is up 43 cents to $17.21 and options volume is running 2X the average daily after the FTC cleared its deal with Wyeth (WYE). Shares saw a morning spike on the news and 74K calls along with 35K puts now traded on the pharmaceutical giant. One options player took a decidedly bullish play on PFE in midday action, and bought the Dec 17 - 19 call spread, while selling Dec 15 puts. They paid 35 cents for the three-way trade, 5000X. It was tied to a block of 250K share at $16.96. Another investor took a longer-term view and bought 3500 Jan11 calls at the 17.5 line for $1.86.

Select Sector Financials (XLF) is up 43 cents to $15.64 and impressive 482K calls traded on the ETF today. The volume represents 3X normal and 4X the number of puts. The top trades of the day are 35000 Oct 15 - Nov 16 call spreads, where an investor collected 7 cents to sell Oct and buy Nov. The next biggest trades: 23000 Oct - Nov 16 call spreads, where the strategist apparently paid 45 cents to sell Oct and buy Nov. In both cases, the spreads seem to be closing out October and opening a similar position in November, perhaps betting that the rally in the financials will continue through the earnings reporting season and into the Nov expiration (37 days).

Bearish Flow

Bearish activity detected in Fairchild Semiconductor (FCS), with 2580 puts trading, or 7x the recent avg daily put volume. Shares are up 27 cents to $9.44 and the focus is on Nov 10 puts, with 2,149 traded. The top trade is 451 on the ISE for $1.19, which is an opening customer buyer, according to sentiment data. Implied vols (average) edging up to 67.8, from 67 late Tuesday, ahead of earnings tomorrow, before market.

Implied Volatility Movers

The CBOE Volatility Index (.VIX) is down .41 to 22.59 and on pace to close at 13-month lows. VIX has suffered an 8-day losing streak and is down sharply from the 29.56 seen on October 2. The slide in the "fear gauge" comes amid very bullish activity in the options pits Wednesday. Approximately 5.8 million puts and 9.1 million calls traded so far (a ratio of .63, compared to a 22-day average of .76).

Implied volatility is also lower in Intel (INTC), JP Morgan (JPM), and Abbott Labs (ABT). Implied volatility is running higher in NCR (NCR), Pfizer (PFE), and KLA Tencor (KLAC).