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Sentiment

Stocks rallied around news China unpegged the yuan from the dollar early, but trading has turned mixed late Monday. Markets moved broadly higher across Asia and Europe after the People’s Bank of China announced plans to remove its peg against the dollar, ending a policy initiated two years ago during the financial crisis to protect its exports. The move seemed to signal increasing confidence in Asia’s economy, and also helped ease some recent tension about trade wars. With no earnings or economic data to guide trading, the Dow Jones Industrial Average rallied more than 140 points on the news. However, the tone of trading had turned more cautious by midday and the Dow is up just 20 points heading into the final hour. The NASDAQ is down 9. The CBOE Volatility Index (.VIX) edged up .52 to 24.47. Options action is picking up, with roughly 6.4 million calls and 5.4 million puts traded so far.

Bullish Flow

Alcoa (NYSE:AA) is up 93 cents to $12.04 and leading the Dow Jones Industrial Average to a 75-point midday gain after the company told CNBC it expects demand for its aluminum products to increase by 10 percent this year. The top options trade is a block of 8,940 July 12 calls at 42 cents on ISE, which is an opening customer buyer, according to ISEE data. 33.2K now traded. Another 14.8K Jul 13 calls also changed hands. After a miserable 5-month slide, AA shares are up about 14 percent since June 7. Some players might be turning to the short-term calls as a cheap way to play the recent rebound. Earnings due out 7/12.

Xerox (NYSE:XRX) is up 4 cents to $9.46 and options volume is 3X the average daily, led by buyers of Jul – Oct 9 call spreads, 10000X. Top trade is 1500 at 47 cents on ISE, where data consistent with half customer buyers. Looks like rolling of bullish positions in $10 call options from July to October.

Bearish Flow

Capital One (NYSE:COF) is up $1.45 to $44.09 and looks like an investor pays 72 cents to open new positions in the Aug 38 – 41 put spread, 4450X on PHLX. Shares of the credit card companies (V, MA) are rallying on news today that the House has agreed on its version of a pact to cap interchange fees, which remove punitive language about “marginal costs.” Today’s put spread might be a move to hedge recent gains in COF, which is now up 16 percent since June 9.

Implied Volatility Movers

BP (NYSE:BP) shares are back under pressure, down 2.5 percent to $31, after the company said the cost of the spill has reached $2 billion. Active trading continues in the options market, with another 58K calls and 55K puts traded. After easing from 86 last week, implied volatility is up 7 percent to 77 today. Meanwhile, a noteworthy trade in recent action is an August 10 – 12.5 put spread bought at 15 cents, 1000X. Looks like disaster insurance on the oil giant.

Unusual Volume Movers

Russell 2000 Small Cap Fund (.RUT) options volume is running 2X the usual, with 174,000 contracts traded and put activity representing about 69 percent of the activity.

Select Sector Basic Materials (NYSEARCA:XLB) options activity is running 8X the usual, with 112,000 contracts traded and put volume representing 71 percent of the volume.

Visa (NYSE:V) options volume is running 3X the usual, with 110,000 traded and call volume representing 70 percent of the activity.

Unusual volume is also being seen in Micron (NASDAQ:MU), EMC (NYSE:EMC), and Amgen (NASDAQ:AMGN).

Source: Monday Options Recap