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Sentiment

Stocks are lower on disappointing jobless claims numbers and cautious guidance from tech bellwether Cisco Systems (CSCO). Stock index futures fell into the red pre-market after the Labor Department reported that filings for jobless benefits fell by 4,000 to 444,000 in the week ended May 8. Economists were looking for a larger decline to 440,000. Meanwhile, shares of Cisco are weighing on both the Dow and the NASDAQ after the company reported better-than-expected results for the first quarter, but issued cautious revenue guidance for the second. Heading into the final hour, the Dow is down 76 points and the NASDAQ off 25. Selling pressure has picked up late in the day and, after falling to 24.3, the CBOE Volatility Index (.VIX) is up .38 to 25.90. Options action is on the light side, with 6.4 million calls and 5.6 million puts traded so far.

Bullish Flow

Computer Associates (CA) is seeing relative strength and increasing call volume ahead of earnings, after the close of trading today. Shares are up 23 cents to $22.16 and noteworthy action is being seen in Nov 25 calls, with 1670 traded and most at the 85-cent asking price. Open interest is 1150. May 22.5s have traded 1195 (91 percent bid) and possibly seeing closing action ahead of the results. Open interest 7724. Aug 25s and Nov 27.5 calls seeing some interest as well. Implied volatility flat at 33.5.

Alcoa (AA) shares are up 64 cents to $13.10 and were by far the best percentage gainers in the Dow Jones Industrial Average Thursday morning. Briefing attributes the relative strength to "positive Tier 1 firm commentary". In the options market, 69K calls already traded on the aluminum maker — or 8X the expected and more than 7X the number of puts. It includes a buyer of 20K June 14 calls at 40 cents, tied to 700K shares at $13.23 (adjusted). More than 43K now traded. June 13 calls, which saw a large opening buyer of 19K at 43 cents yesterday (also tied), have traded another 3000X. May 13 and 14 calls are seeing interest as well. Implied volatility is down about 2.5 percent to 43.

Bearish Flow

The top equity options trade so far today is a block of 22,050 Monsanto (MON) Jan 45 puts at $2.66 apiece on AMEX. Shares are down $1.49 to $55.39 and falling to new 52-week lows. The block of puts was part of a 1X3 put ratio spread, where an investor sold 7350 of the Oct 60 puts to buy the Jan 45s. It's likely a roll down from in-the-money Oct puts to the 3X as many deep out-of-the-money Jan put options. Shares have been under pressure throughout most of 2010, falling 36 percent since Jan 8. Implied volatility is up 6 percent today to 36, from about 26 before the recent decline began.

Implied Volatility Movers

Moody's (MCO) has seen a day of volatile trading, falling to a low of $20.77 about 40 minutes ago on news the Senate voted to boost regulation of credit agencies and also approved the creation of an independent rating agency. However, the stock has since come off the lows and is up 6 cents to $22.35. Options action includes about 43K puts and 9,655 calls. Some of the action appears to be premium selling. For example, in the May 20s, the most actives, 8625 traded and 74 percent on the bid. Nevertheless, implied volatility is up another 26 percent to 66.5, as some players brace for further fall out for the credit rating agencies.

Unusual Volume Movers

Cisco Systems (CSCO) options volume is running 3X the usual, with 220,000 contracts traded and call activity representing about 59 percent of the activity.

Baidu.com (BIDU) options activity is running 8X the usual, with 409,000 contracts traded and call action representing 61 percent of the volume.

Sybase (SY) options volume is running 57X the usual, with 123,000 traded and call volume representing 81 percent of the activity.

Unusual volume is also being seen in Sprint Nextel (S), Leap Wireless (LEAP), and Netflix (NFLX).

Source: Thursday Options Recap