Sentiment
The major averages are holding modest gains following steady trading overseas and upbeat economic news Wednesday. The table was set for a strong open on Wall Street after stocks moved broadly higher across Asia and Europe. A stronger-than-expected report on April Durable Goods (2.9 percent vs. 1.5 percent consensus) and better April New Home Sales (+504K vs. 425K) also helped support morning trading. At its best levels, the Dow Jones Industrial Average had added 135 points. However, notable weakness in Microsoft (MSFT), Verizon (VZ), and McDonald’s (MCD) are weighing on the industrial average late Wednesday and the Dow is now up just 20 points. The CBOE Volatility Index (.VIX) lost 1.82 to 32.79. Trading in the options market is running about the typical pace, with 8.1 million calls and 6.8 million puts traded so far.
Bullish Flow
JP Morgan (JPM) edged up 12 cents to $39.06 and the top options trade in the name today is a block of 8,874 Jul 43 calls at 89 cents per contract. It printed early on the ISE and is an opening customer buyer, according to ISEE data. 12,400 now traded vs. 1,487 in open interest. 71K calls and 78K puts traded total. Implied volatility in JPM is down 8.5 percent to 42, significantly below the multi-month highs of 56 seen a week ago.
BofA (BAC) is a Dow component leader early Wednesday, up 57 cents or 3.6 percent, to $16.07. A noteworthy trade surfaced in the bank late Tuesday when a strategist bought 60,000 Jun 16 calls at 49 cents while selling 70,000 Jun 17 calls at 17 cents. Open interest data indicate new positions were opened and this strategist might expect BAC to recover in the weeks ahead, but not make a significant move beyond $17. Shares are down 17.5 percent since April 15.
Bearish Flow
From Henry Schwartz: Rambus (RMBS) put volume surpassed 6 times normal by midday with a buyer paying $1.37 for 9400 downside June 21 puts vs shares at $25.15, and additional buying seen in the Jun 23 puts. Implied vols at both strikes lift nearly 7 points in front of a court decision noted in Barron's. Calls are also unusually active at 3x adv, with nearly 2000 June 25 calls trading, and bid-side volume in the upside June 28 and 30 calls.
Implied Volatility Movers
US Airways (LCC) hit a new 52-week high and is up 85 cents to $8.66 after JP Morgan upgraded the stock to Overweight from Neutral. About 13K calls already traded on the airliner. The top trade is 2000 Jul 9 calls at 77 cents, which looks like an opening buyer. June 8, 9 and 10 calls are seeing interest as well. Implied volatility is down 6.5 percent to 74.
Unusual Volume Movers
Microsoft (MSFT) options activity is running 2X the usual, with 288,000 contracts traded and call action representing 73 percent of the volume
Select Sector Tech Fund (XLK) options activity is running 5X the usual, with 171,000 contracts traded and call action representing 77 percent of the volume.
McDonald’s (MCD) options volume is running 7X the usual, with 150,000 options traded and call volume representing 96 percent of the activity.
Unusual volume is also being seen in Nokia (NOK), Vertex (VRTX), and Mirant (MIR).
