Disappointing economic data and credit worries in Europe conspired to send stock market averages sharply lower Thursday. The table was set for early weakness after the Labor Department reported that filings for jobless benefits increased by 8,000 to 480,000 in the week ended January 30. Economists were expecting a decline of about 15,000. The numbers held more sway than usual because today's poor numbers come one day before the Labor Department released key data. Economists expect Friday's report to show the economy adding 13,000 jobs in the first month of 2010.
Meanwhile, benchmarks were broadly lower in Europe amid anxiety about widening credits spreads in Spain, Greece and Portugal. Spain's IBEX plummeted nearly 6 percent.
The volatility spilled over onto US shores and the Dow Jones Industrial Average is down 220 points heading into the final hour. The CBOE Volatility Index (.VIX) jumped 3.70 to 25.30. Options action is much more defensive, with approximately 6.1 million puts and 5.4 million calls traded (a ratio of 1.12, compared to a 22-day average of .76.)
Mastercard (NYSE:MA) is down $21.03 to $226.55 as investors express disappointment with the company's latest earnings release. In the options market, one player might see today's drop as an opportunity — the bullish July 210 - 240 risk reversal trades at $2.30, 3000X on ISE.
SPDR Oil and Gas Exploration and Production Fund (NYSEARCA:XOP) is off $1.22 to $40.05 after crude oil prices slipped $3.14 to $73.85 a barrel. In XOP options, volume is running 3X the average daily, led by sellers of Mar 37 puts. One player collected 75 cents, 6600X and another (or maybe the same) 75 cents, 7500X. 15.7K now traded vs. 4,482 in open interest. These investors might be willing to buy shares if the ETF falls to $37.
Aflac (NYSE:AFL) has been trading lower on increasing put volume today. Shares are down $2 to $48.94 and more than 6,800 puts traded, which represents 4X the typical volume for the insurance company. The action is scattered across Feb, Mar, and May puts with strike prices ranging from 47 to 50. Directional sentiment based on the total flow is 57 percent bearish (32 percent neutral) and implied volatility is up about 7 percent to 34.5, suggesting put buyers are driving the flow. No news today. Earnings were reported two days ago.
Implied Volatility Movers
Corning (NYSE:GLW) is down 59 cents to $18.36 and options action is heating up ahead of the company's investor meeting tomorrow. The top trade is a block of 2400 Mar 20 puts at $1.72 on ISE, which is an opening buyer. 4150 now traded. Feb 18 puts and 19 calls are seeing interest as well. Implied volatility edged up about 4.5 percent to 35.
Unusual Volume Movers
Comcast (NASDAQ:CMCSA) is seeing 7X average daily trading volume, with 85,000 contracts traded and put volume representing about 77 percent of today's activity.
NRG (NYSE:NRG) is seeing 8X average trading volume, with 64,000 contracts traded and calls representing 98 percent of today's trading activity.
Toyota (NYSE:TM) is seeing 5X normal trading volume. 62,000 contracts traded, with put options representing about 66 percent of today's volume.