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Sentiment

Stocks are broadly higher after upbeat earnings from Dow component Alcoa (NYSE:AA) sparked optimism about the corporate profit-reporting season. Late Monday, Alcoa posted results that beat Street estimates and also raised its forecast for aluminum demand. Beyond that, the news remains light. Economic data released early showed the nation’s Trade Balance widening to a larger-than-expected $40.2 billion in May. The report was largely ignored, as the earnings-reporting season is becoming the focus of attention. (However, Retail Sales and FOMC minutes have market moving potential for Wednesday.) The Dow Jones Industrial Average is up 175 points and near session highs. With forty-five minutes left to trade, the CBOE Volatility Index (.VIX) is down .79 to 23.64. Options action is brisk, with about 7.7 million calls and 6.1 million puts traded so far.

Bullish Flow

Seeing active trading in Texas Instruments (NASDAQ:TXN) ahead of Intel's (NASDAQ:INTC) earnings, due after the close. 26K calls traded so far, or 4X the recent average daily. The top trades are actually puts, 640 Oct 25s on the $1.59 bid and 590 Jan 24 puts on the $1.96 bid. Most of the action has been in smaller lots, with July 25 and 26 calls leading the action. 9175 and 4236 traded, respectively. Implied volatility is up 3 percent to 33. TXN is slated to deliver its earnings on July 19.

Orexigen Therapeutics (NASDAQ:OREX) is up 78 cents to $4.94 after the FDA said that Vivus Pharmaceutical’s obesity drug QNEXA is effective. According to Reuters, the action “could also signal what’s ahead for Arena Pharmaceuticals and Orexigen Therapeutics, two other obesity pill makers that have rival products up for review later this year.” OREX is up and options volume is 6X the average daily. The top trade is a block of 3222 July 5 calls at 60 cents, which might be a closing trade. The contract is 6 cents out of the money and expires later this week. 4142 now traded. Aug and Oct 7.5 calls are seeing some selling. Implied volatility is down 11 percent to 134.

Bearish Flow

Apple Computer (NASDAQ:AAPL) shares are under pressure, down $9.10 to $248.18 in volatile trading after Consumer Reports said yesterday that they cannot recommend iPhone 4 because of reception problems. Kaufman analysts said today that the conclusion is a negative and could create an overhang for Apple. The firm believes a potential fix is to discount the price of an iPhone 4 bumper case or include one free with phone purchase, as the case solves the reception problems. There was also chatter making the rounds this morning that Apple might offer a free fix to iPhone users with reception problems — Briefing. Regardless, worries that iPhone 4 might be a lemon is weighing on Apple shares. Options action is brisk as well, with 104K calls and 80K puts traded in the first hour, or 4X more than normal. Implied volatility is rallying 7.5 percent to 43.5.

Implied Volatility Mover

Vivus Pharmaceuticals (NASDAQ:VVUS) hit a morning high of $12.75 and was recently up $1.53 to $12.18 after briefing documents from an FDA staff review stoked optimism of approval of the company’s fat pill, QNEXA. The stock is off its highs after Huffington Post reported that the product is likely to face safety questions when an outside panel reviews it on July 15. In the options market, active trading continues, as players jockey for position ahead of Thursday’s news. 32K calls and 48K puts traded. Recent trades include a seller of 2000 Jan 17.5 calls at $2.75 and 4000 July 7 puts at 90 cents. Meanwhile, implied volatility is down about 11 percent, but remains elevated at 220, as substantial uncertainty still remains.

Unusual Volume Movers

Intel (INTC) options volume is running 4X the average daily, with 320,000 contracts traded and call volume representing 68 percent of the volume.

Alcoa (AA) options volume is 3X the average daily, with 117,000 traded and call volume accounting for 60 percent of the action.

Alcatel-Lucent (NYSE:ALU) options action has picked up to 40X the recent average daily, with 79,000 contracts traded and call volume accounting for 98 percent of the action.

Unusual volume is also being seen in Yum Brands (NYSE:YUM), AIG (NYSE:AIG), and eBay (NASDAQ:EBAY).

Source: Tuesday Options Recap