Wednesday Options Recap

Sentiment

Stocks are holding modest gains in a day of relatively quiet market action Wednesday. With no economic data to guide the morning action, attention was again on earnings. The major averages slipped at the open after Boeing (BA) and Wells Fargo (WFC) traded lower on earnings news.

However, Sandisk (SNDK) and Morgan Stanley (MS) rallied (see Implied Volatility Movers) on better-than-expected results. Meanwhile, a jump in crude oil helped lift some of the energy-related names. Crude oil rose $2.25 to a one-year high of $81.37 a barrel following EIA's latest weekly inventory report.

Consequently, Exxon Mobile (XOM) and Chevron (CVX) are among the winners in the Dow Jones Industrial Average. Alcoa (AA) is the best gainer and American Express (AXP) isn't too far behind. 21 Dow stocks are higher, 9 are lower, and the industrial average is up 34 points heading into the final forty-five minutes of trading.

The CBOE Volatility Index (.VIX) is suffering its 12th loss in 13 trading sessions. VIX is down .70 to 20.20. Trading in the options market is active, with 5.6 million puts and 7.6 million calls traded so far (a ratio of .74, compared to a 22-day average of .80).

Bullish Flow

Gold Fields (GFI) is up 19 cents to $14.37 and interest in GFI Jan10 17.5 calls continues. Open interest increased by 8,345 to 52,981 yesterday. The action included 5000 contracts bought for 47.5 cents in morning action. Another block of 10K recently traded, bought for 50 cents on PHLX. Looks like some investors might be accumulating positions in the contract, creating by far the largest open interest in GFI. Gold has erased early losses and is up $1.3 to $1063, as the euro makes a run beyond 1.50 against the buck.

Big Print in Teck Resources (TCK) Wednesday. Shares are up 91 cents to $33.64 and a strategist sells 20K Nov 26 puts to collect 15 cents per contract. Possibly closes, as open interest is 22.8K and the put is 22.7 percent out-of-the-money with 30 days of life remaining.

Bearish Flow

US Airways (LCC) is down 9 percent to $3.95 and puts are active ahead of the airline company's earnings tomorrow, before market. Jan10 puts at the 2.5 line are the most actives and the 12.4K traded includes a block of 10K at the offer for 20 cents at about Noon. Looks like possible opening buyers in Mar 3 and Jan10 4 puts as well. 21K puts traded total, compared to 5,200 calls. Implied volatility is up to 79, from a 52-week low of 76.7 late Tuesday.

Implied Volatility Movers

As Bob Dylan once sang, "Times, they are a changin'." A little over one year ago, Morgan Stanley (MS) implied volatility surged to more than 300 percent as fears about the impact of the credit crisis sent shares of the investment bank reeling in early October 2008. Fast-forward to today, MS is up 7.1 percent to $34.83 after reporting a 38 cent per share quarterly profit on $8.7 billion in revenues. Analysts were looking for 27 cents on $7 billion. Implied volatility (average) in MS is crashing down to 30.5, from about 39.4 yesterday and falling well below 1) the 52-week low of 38 set Monday and 2) the 30-day historical volatility of 36.3 percent.