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Sentiment

Stocks have given up early gains and are trading broadly lower Wednesday. The major averages held steady through midday with help from better-than-expected earnings from Apple (NASDAQ:AAPL), Morgan Stanley (NYSE:MS) and Coca Cola (NYSE:KO). With no economic data on the docket, attention then turned to Fed Chairman Ben Bernanke’s testimony on Capitol Hill. When the head of the Fed failed to offer any soothing words about the economy (see implied volatility movers), a round of selling surfaced and sent the Dow Jones Industrial Average skidding for a triple-digit loss. The Dow is down 130 points and 165 from its best levels of the session. With about an hour left to trade, the CBOE Volatility Index (.VIX) is up 2.20 to 26.13 and session highs. Trading activity in the options market includes 5.4 million calls and 4.6 million puts.

Bullish Flow

Yahoo (NASDAQ:YHOO) is down $1.23 to $13.97 after the Internet company reported earnings that beat expectations, but revenues fell short of estimates and Yahoo offered only in-line earnings for the third quarter. In the options market, sentiment seems a bit less bearish as one player opened the bullish Jan 12.5 – 16 risk reversal at 13 cents (bought calls, sold puts), 35000X on AMEX. The trade was tied to 2.17 million shares at $13.90. Separately, the Aug 13 – Oct 17 bullish risk reversal traded at 2 cents (credit), 5000X. 71K calls and 76K puts traded in the name so far, or 10X the expected for midday. Implied volatility is down 11 percent to 32.5.

Coca Cola (KO) is up $1.08 to $54.32 post earnings, the second best gainer in the Dow behind Caterpillar (NYSE:CAT). Options volume is 3.5X the average daily, led by an Aug 55 – Nov 57.5 call spread bought at 15 cents, 15000X. Looks like a roll of bullish calls out a few months and up in strikes. Implied volatility in KO is down 10.5 percent to 16.5 (compared to a 52-week high and low of 31 and 13.)

Bearish Flow

Western Digital (NASDAQ:WDC) is off $1.19 to $30.66 and falling in sympathy with storage device maker Seagate (NASDAQ:STX). Seagate Tech fell $1.23 to $13.30 after the company reported 71 cents per share for the quarter, which missed by 6 cents. Revenues also fell short of expecations. Meanwhile, in WDC options action, recent trades include Aug 28 – 31 put spreads, at least 3300X on ISE. The top trade is 1000 at $1.18 and appears buyer initiated, probably a play on Western Digital’s earnings, due out after the closing bell.

Implied Volatility Mover

CBOE Volatility Index (.VIX) is up 2.00 to 25.93 late Wednesday, session highs, as stocks falter after Fed Chairman Ben Bernanke failed to offer any comforting words in his testimony on Capitol Hill. Instead, the Fed Head said the economic outlook remains unusually uncertain and noted that participants at the April 2010 FOMC meeting made modest downward revision to 2010 to 2012 GDP projections. The Dow Jones Industrial Average faltered on the headlines and is down 113 points, near session lows. The decline is orderly thus far, with only BofA (NYSE:BAC), HP (NYSE:HPQ), JP Morgan (NYSE:JPM), and J&J (NYSE:JNJ) within the Dow suffering losses in excess of 2.25 percent. Meanwhile, 67K and 22K puts traded on the VIX, only about 68 percent the recent average.

Unusual Volume Movers

Bullish flow detected in 3M (NYSE:MMM), with 11611 calls trading, or 3x the recent avg daily call volume in the name.

Bullish flow seen in Navios Maritime Partners (NYSE:NMM), with 2279 calls trading, or 26x the recent avg daily call volume in the name.

Bullish flow detected in Sandridge Energy (NYSE:SD), with 16767 calls trading, or 2x the recent avg daily call volume in the name.

Increasing volume is also being seen in US Airways (LCC), Morgan Stanley (MS), and Biogen Idec (NASDAQ:BIIB).

Source: Wednesday Options Recap