The bearish underlying tone continues following another round of grim economic news Thursday. The table was set for morning losses on Wall Street after European markets traded lower and the latest weekly jobless claims numbers showed an increase of 13,000. Economists were looking for a decline of 1,000. Making matters worse, the ISM Index unexpectedly fell to 56.2 in June from 59.7 the month before (vs. 59 consensus) and May pending home sales stumbled 30 percent. Consequently, poor economic numbers weighed on the major averages for a third day and the Dow Jones Industrial Average is down 74 points to 9,700 heading into the final thirty minutes of trading. The Dow is now down 8 of the past nine trading sessions and has given back 750 points during that time. The market slide has clearly stirred up some bearish sentiment in the options market. 9.2 million puts and 7.5 million calls have traded across the eight options exchanges so far.
Bullish Order Flow
SPDR Homebuilders Trust (XHB) is down 7 cents to $14.25 after data showed pending home sales falling 30 percent in May, much worse than the 10.5 percent decline that economists had expected. The order flow is interesting. In XHB, a block of 18.8K Jan 17.5 calls traded at the 60-cent ask price. 21.6K traded and, while open interest is 30.6K, some of it is from Monday when 15.7K changed hands, including a block of 13.1K at the 81 cent ask price. So, it looks like one or more investors might be accumulating a bullish position in the homebuilder fund. A number of individual builders are seeing interest today as well: A block of 11K Lennar (LEN) Aug 13 puts was sold at 88, cents, Pulte Homes (PHM) July 9 calls ahve traded 5085X, and Bullish flow detected in D R Horton Inc with 9646 calls trading, or 4x the recent avg daily call volume in the name.
Bearish Order Flow
LDK Solar (LDK) is up 18 cents to $5.35 and options volume is 3X the average daily, driven by apparent buyers of Jan 2.5 puts. 6,277 traded, including a block of 5280 at 50 cents when the bid-ask was 41 to 51. It might close, as open interest is an impressive 156.4K and by far the largest position in the Xinyu City, China solar wafer maker. Meanwhile, implied volatility in LDK is up about 1.5 percent to 78.5.
Implied Volatility Mover
Unusual action in the CBOE Volatility Index (.VIX). The S&P 500 is down 4 points midday and options action is very defensive today. 6.5 million puts traded so far, which is 2X the expected for midday and compares to less than 5 million calls. 386K puts and 223K calls traded in the S&P 500. Yet, VIX is down 1.29 to 33.25 and falling to session lows. The decline in the volatility might reflect expectations for quiet trading around the Fourth of July holiday. Yet, with monthly payroll data looming tomorrow, that might be a bold assumption.
Unusual Volume Movers
GE (GE) options volume is running 2X the average daily, with 232,000 contracts traded and call volume representing about half of the total volume.
Select Sector Energy Fund (XLE) options volume is 3.5X the recent average levels, with 169,000 contracts traded and put volume accounting for 84 percent of the volume.
iShares Silver ETF (SLV) options volume is 3.5X the average daily, with 139,000 traded and put volume representing 61 percent of the activity.