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Sentiment

The major averages are deep in the red on concerns about ongoing problems in some of Europe's debt markets. The table was set for early weakness on Wall Street after the euro fell to 12-month lows against the dollar and European equity markets faced renewed selling pressure Tuesday. The fear is that, while Greece agreed to an aid package Sunday, it might be difficult for other European nations to shoulder the $144 billion tab and that problem will be exacerbated if the situation doesn't improve in debt markets of other countries like Spain and Portugal.

With the focus on Europe, the day's domestic news – which included better-than-expected earnings from Dow components Merck (NYSE:MRK) and Pfizer (NYSE:PFE) – was largely ignored. The economic data showed Factory Orders up .3 percent (vs. -.2 percent consensus) and Pending Homes Sales gaining 5.3 percent (vs. 5 percent consensus). The data did little. Instead, the Dow Jones Industrial Average fell under pressure of a global equity market rout and is down 232 points heading into the final hour. The CBOE Volatility Index (.VIX) hit 25.70, its best levels since early Feb, and was recently up 4.62 to 24.81. Options action is brisk, with 9.4 million calls and 8.9 million puts traded so far.

Bullish Flow

Ann Taylor (NYSE:ANN) is up $1.44 to $24.09 and calls are active for a second day after the retailer said it sees first quarter revenues of $475 mln, up from $445 mln and better than the $455.6 mln that analysts were expecting. Yesterday, the focus was on June 22.5 and 25 calls. Today, it appears that one or more investors is selling May 22.5 (2000X) and 25 (3000X) calls to buy the June 25s (4000X). The company said it will report on May 21, before market, and this strategist appears to be rolling a position ahead of the results.

Big prints in BP (NYSE:BP) after an investor pays 22 cents for the Oct 55 – 60 (1X2) call spread, 20000X on PHLX. In this spread, 40K Oct 60 calls were sold at $1.06 apiece, making it today's top equity options traded of the day. 20K Oct 55 calls bought at $2.34. Both legs look like new positions and, with shares up 42 cents to $50.61, it appears to be a play on a recovery in BP shares over the next few months. The stock was around $60 prior to the catastrophic oil spill in the Gulf of Mexico.

Bearish Flow

Heavy trading in ETF puts today, including the SPYders (NYSEARCA:SPY). Shares are down $2.61 to $117.74 and 885K SPY puts traded so far, or more than double the typical volume. It includes a May 105 – 115 put ratio spread at 79 cents, 10500X on NYSE. Meanwhile, today's top ten most actively traded contracts are all puts on ETFs: SPY May 115 puts, XLF May 15 puts, XLF May 16 puts, SPY May 118 puts, SPY May 117 puts, SPY May 119 puts, SPY May 116 puts, SPY May 120 puts, QQQQ May 49 puts, and SPY 110 puts. 2.47 mln puts and 1.21 mln calls traded across all the exchange-traded funds.

Implied Volatility Movers

Intermune (NASDAQ:ITMN) is halted, news pending. It's probably related to Esbriet(NYSE:R) (pirfenidone) for pulmonary fibrosis, which an FDA panel recommended approval of on Mar 9. A May 4 target date has been set under the PDUFA. Shares were down $2.60 to $45.44 prior to the stoppage. Options action was brisk. 9625 calls and about 11K puts traded. The top trade was a May 25 – 35 put spread, apparently bought at $3.15, 2000X on PHLX. Implied volatility is already falling, down 42 percent to 107 prior to the halt.

Unusual Volume Movers

Nvidia (NASDAQ:NVDA) options volume is running 2X the usual, with 67K contracts traded and call activity representing about 77 percent of the activity.

Dow Chemical (NYSE:DOW) options activity is running 2X the usual, with 61,000 contracts traded and put volume representing 69 percent of the volume.

McDonald's (NYSE:MCD) options volume is running 2X the usual, with 52,000 traded and call volume representing 90 percent of the activity.

Unusual volume is also being seen in Oracle (NYSE:ORCL), Marvell Tech (NASDAQ:MRVL), and MEMC (WFR).

Source: Tuesday's Options Recap