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Sentiment

The major averages are under water late Thursday amid ongoing concerns about the European Debt Crisis and the global economy. The Dow Jones Industrial Average opened the session lower and followed European benchmarks southward after the cost of insuring Greek debt rose to record highs. France’s CAC 40 Index lost 2.4 percent and Spain’s IBEX slid 3 percent Thursday. In the US, the domestic news was a bit better than expected. Data released Thursday morning showed weekly jobless claims down 19K to 457K in the period ended June 19. Economists were looking for a drop to 460K. A separate report showed Durable Goods down 1.1 percent in May, and not as bad as the 1.3 percent drop that economists had expected. Nevertheless, after two days of very bleak housing numbers, the better claims and durable goods data did little to lift sentiment. Instead, the major averages fell into midday and are not far from session lows heading into the final hour. The Dow is down 117 points. Options action is more defensive, with roughly 5.4 million calls and 5.5 million puts traded so far.

Bullish Flow

Qualcomm (NASDAQ:QCOM) is down 60 cents to $34.82 and recent trades include July 34 – 36 call spreads, which traded at $1.06, 1605X, and at $1.05, 1058X, on ISE. More than 4000 traded and ISE data indicate that half are opening buyers. It seems to be either rolling down in strikes or bullish vertical spreads. Implied volatility in QCOM is up about 6 percent to 33.5. A number of tech names, Palm (PALM), Oracle (NYSE:ORCL), and Research In Motion (RIMM), are due to report earnings after the closing bell today.

Smithfield Foods (NYSE:SFD) is up a dime to $15.15 and 7592 Aug 18 calls traded, vs open interest of only 10. More than half traded on the ISE, where sentiment data indicate that 4100 contracts, or 98 percent of the call volume, are opening customer buyers. Implied volatility is up 4.5 percent to 44. Some of the poultry related names (TSN, SAFM, HRL, PPC) are seeing relative strength today on news Russia is lifting a ban on poultry imports.

Bearish Flow

Potash (NYSE:POT) shares are down $2 to $95.73 and a noteworthy spread is seen in the September 90 and 75 puts, after the investor apparently bought 7,500 of the higher strike at $4.30 while selling the lower strike at $1.12. This spread, at a $3.18 net debit, offers a possibly $11.82 pay-off (excluding commissions) if shares fall to $75 or less at the September expiration. It’s probably a play on macroeconomic trends, as fertilizer names are falling along with other commodity-related groups.

Implied Volatility Movers

Big Prints in the CBOE Volatility Index (.VIX), which is up 2.37 to 29.27, after a strategist apparently buys the Jul 40 – Aug 45 call spread at 15 cents, 50000X. Looks like a roll of a bullish position from one to the month and probably a move to hedge the risk of potential market volatility in the weeks/months ahead. VIX July options expire on the 21st. Notable blocks of July 40 calls traded on June 7 (20.4K at $2.85) and June 21 (when 25K traded at 63 cents each.)

Unusual Volume Movers

Select Sector Financials (NYSEARCA:XLF) options volume is running 2X the usual, with 560,000 contracts traded and put activity representing about 93 percent of the activity.

SPDR Retail Trust (NYSEARCA:XRT) options activity is running 2X the usual, with 97,000 contracts traded and put volume representing 96 percent of the volume.

Seagate Tech (NASDAQ:STX) options volume is running 2.5X the usual, with 45,000 traded and put volume representing 67 percent of the activity.

Unusual volume is also being seen in DirecTV (NASDAQ:DTV), AMD (NYSE:AMD), and Ambac (ABK).

Source: Thursday Options Recap: Playing Defense