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Sentiment

Positive earnings guidance from FedEx (FDX) and better-than-expected sales data helped send the major averages higher in morning action. From that point forward, trading slowed to a crawl. FedEx helped set a positive tone for early trading after raising its fiscal first quarter and 2011 earnings guidance. Then, the early advance gathered some additional momentum after data released at 10:00 a.m. Eastern Time showed New Home Sales at an annual rate of 330K in June, up from 267K in May and better than the 310K that economists had predicted. From that point forward, action has been slow. With less than an hour to trade, the Dow Jones Industrial Average is up 65 points. The NASDAQ added 18. The CBOE Volatility Index (.VIX) edged down .24 to 23.22. Options volume is on the light side, with about 4.9 million calls and 4.4 million puts traded so far.

Bullish Flow

AIG (AIG) is up $2.35 to $39.21, and testing mid-June resistance highs, and 33K calls traded in the name so far, or 6X normal and 3X the number of puts. The top trade is a buyer of 5000 Sep 40 calls at $2.30 each, which appears to be an opening position. Meanwhile, August options with strike prices from 36 to 45 are seeing brisk trading as well. Implied volatility is up about 5 percent to 54. No news on AIG today. The relative strength in the stock and the increasing call activity might be in reaction to today’s better-than-expected New Home Sales and also diminishing concerns about Friday’s stress test of European banks. AIG is due to report earnings early August.

Western Refining (WNR), an El Paso, TX oil and gas refiner, is up 4.7 percent to 4.7 percent to $5.11 and directional order flow is bullish, with 3,100 calls and 410 puts traded so far. Aug 5 calls are the most actives. 1935 traded (89 percent Ask). Sep 6 calls traded 859X (70 percent Ask). The action might close. No news in the name. Earnings due out Aug 5, before market.

Bearish Flow

BP (BP) shares are up $1.57 to $38.43 and options action remains brisk, as players react to the latest developments in the Gulf spill saga and await earnings. According to recent media reports, BP’s Hayward is stepping down in October and will take a job at the TNK – BP joint venture. Making Hayward the fall guy seems to be the company’s latest efforts in trying to mitigate some of the negative impact from a PR nightmare. In any event, BP is up $1.57 to $38.43 and implied volatility easing about 2 percent to 52.5 on the Hayward news. Meanwhile, Aug 35 puts and Aug 40 calls are the most actives, as players jockey for position ahead of tomorrow morning’s earnings release. Most of the action is in smaller lots. The top trades Aug 40 – 45 put spreads bought at $1.21, 1000X in recent trade.

Implied Volatility Mover

After tumbling 33.6 percent on earnings Friday, Great Atlantic & Pacific Tea Company (GAP) shares are up 15 cents to $2.76 Monday morning. Options volume is running 15.5X the average daily, with 19K puts and 865 calls traded so far. January 1 puts are the most actives. 10.25K traded including a block of 9423 at 25 cents on NYSE. Bid-ask was 10 to 25 cents and the trade looks like an opening put buyer, possibly bracing for additional volatility through year-end. Beyond that, looks like buyers and sellers initiating trades. For example, of the 4800 Aug 2.5 puts traded, 60 percent have been on the Bid and 38 percent at the Ask. Implied volatility is easing as well, down about 32 percent to 70.

Unusual Volume Movers

Bearish activity detected in Supervalu (SVU) with 10360 puts trading, or 6x the recent avg daily put volume in the name.

Bearish activity detected in Symantec (SYMC), with 8763 puts trading, or 3x the recent avg daily put volume in the name.

Bearish activity detected in CH Robinson Worldwide (CHRW), with 5466 puts trading, or 4x the recent avg daily put volume in the name.

Increasing volume is also being seen in Sprint Nextel (S), Genzyme (GENZ), and TEVA (TEVA).

Source: Monday Options Update