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Sentiment

The major averages gave back early gains and are modestly lower Wednesday. The table was set for strength in the tech sector after Apple Computer (AAPL) posted earnings that blew past Street estimates. Meanwhile, stronger-than-expected results from United Technologies (UTX) and Boeing (BA) helped buoy the Dow Jones Industrial Average in morning trading. However, a modest wave of selling pressure surfaced shortly after midday. While there was no specific catalyst, bonds are seeing gains amid ongoing concerns about rising yields in Greece. The airline sector is under pressure on concerns about losses due to the Icelandic volcano. Meanwhile, some of the financials, including Goldman (GS) and Moody's (MCO), are down amid ongoing concerns about regulatory crackdowns. Heading into the final thirty minutes, the Dow Jones Industrial Average is down 20 points and the NASDAQ lost 2. The CBOE Volatility Index (.VIX) is up .91 to 16.64. Trading in the options market is active, with 8.1 million calls and 6.6 million puts traded so far.

Bullish Flow

Continental Airlines (CAL) is down 79 cents to $21.15 amid relative weakness in the sector after the Air Transportation Association estimated the impact from the Icelandic volcano could cost the industry $1.7 billion. CAL is also due to report earnings tomorrow morning and, while shares are down, the options order flow seems somewhat bullish heading into the news, with 22K calls and 2795 puts traded so far. 13731 June 21 calls traded (50% Ask). Another 1494 June 24 calls changed hands (88% Ask) and another 1170 May 24s (57% Ask). Meanwhile, implied volatility has eased a few points to 54. (Note: there was also talk of a British Airways (OTC:BAIRY) flight being diverted in Europe due to engine failure. One source now tells me this was a cargo plane.)

From Henry Schwartz: A large ratio spread traded in Kraft (KFT) this morning, with a customer selling 10000 Jan 30 puts for $2.17 against a buy of 30,000 Jan 25 puts for 62c on the PHLX. Despite the large size, the net premium outlay is only $310K and trade history in the Jan 25 put suggests the trader is likely closing an existing short position opened on 2/25 for $1.22, realizing some $1.8 million in gains, and establishing a new short at the 30 strike. Trade appears bullish with respect to how shares will react to earnings, expected May 6.

Bearish Flow

Moody's (MCO) shares are once again under pressure after the US Financial Crisis Inquiry Commission issued a subpoena alleging the company failed to comply with requests for documents in a timely manner. MCO is down $1.20 to $25.92 and 28K puts have now traded on the credit rating agency. Most of the action is in the May puts with strike prices ranging from 23 to 26 and seems to include some premium selling. Implied volatility has eased about 2.5 percent to 42.5. Some players might be liquidating positions opened last Friday, when put volume picked up on news the SEC filed fraud charges against Goldman (GS) related to securities tied to subprime mortgages. MCO is down 12.5 percent since that time.

Implied Volatility Movers

Beazer Homes (BZH) is up 24 cents to $5.92 and 5160 calls traded on the homebuilder, or about 7X the expected volume and more than 30X the number of put options. The activity includes lots of May 7.5 calls trading at the 10-cent asking price. 3480 traded. While open interest is sufficient to cover, ISEE data indicate that 66 percent of the BZH calls traded on the ISE today, or 725 contracts, are opening customer buyers. Implied volatility is up about 7 percent to 72.5.

Unusual Volume Movers

Apple Computer (AAPL) options volume is running 2X the usual, with 443,000 contracts traded and call activity representing about 55 percent of the activity.

Wells Fargo (WFC) options activity is running 2X the usual, with 185,000 contracts traded and call volume representing 85 percent of the volume.

Qualcomm (QCOM) options volume is running 2X the usual, with 138,000 traded and call volume representing 59 percent of the activity.

Unusual volume is also being seen in EBAY, Gilead Sciences (GILD), and LDK Solar (LDK).

Source: Wednesday Options Recap