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The major averages battled back from early losses and are sporting modest gains Wednesday. The tone of trading remained bearish early after the latest report on Durable Goods showed an uptick of .3 percent in July, which was much worse than economist expectations for a 3 percent increase. Later, data showed New Homes Sales falling to an annual rate of only 276K in July, down from 315K the month before. The rocket scientists had that one all wrong too. They were looking for an increase to 334K. The Dow Jones Industrial Average slipped and fell on the data, making a run back to 9,939. However, a midday run higher fueled a short squeeze and, with 50 minutes left to trade, the Dow is up 22 points to 10,062. The Nasdaq added 15. The CBOE Volatility Index (.VIX) hit a high of 28.92, but is down .85 to 26.61. Options volume activity is running a bit higher than the typical pace, with 6 million calls and 5.55 million puts traded so far.

Bullish Flow

Top equity options trades so far today are upside call buyers in Citi (NYSE:C). Shares are off 4 cents to $3.67 and, after a 10.5 percent month-to-date slide, are once again probing support lows around $3.65. Meanwhile, in the options market, one player paid 9 cents per contract for 15000 Oct 4 calls. Another paid 4 cents each for 17,000 Dec 5 calls. A third big print is a block of 11,000 Dec 3 puts on the 9 cent bid. Some or all of these contracts might be closing. Citi has significant open interest. In fact, of the top 20 largest open interest in the options market today, 18 are Citi puts or calls. The top 15 are Citi options. Meanwhile, implied volatility has risen 10.5 percent to 41.5 today, compared to a 52-week high and low of about 78 and 30.

Somaxon Pharmaceuticals (NASDAQ:SOMX), a San Diego-based drug manufacturer, is up 35.3 percent to $4.54 after announcing a joint promotion agreement with PG for the company's Silenor insomnia treatment. Meanwhile, options volume is 107X the average daily, with about 25,000 calls and 1,775 puts traded so far. Much of the action looks like premium selling. For example, the top two trades are blocks of 3,802 and 3,801 Feb 7.5 calls at 55 and 50 cents when bid-ask was 50 to 65 cents. Meanwhile, implied volatility has eased a bit (-2 percent), but remains elevated at 103.

Bearish Flow

United Healthcare (NYSE:UNH) hit a low of $30.82 early, but was recently up 96 cents to $32. In the options market, a noteworthy trade Wednesday morning is a Sep 31 straddle, sold at $1.95, 10000X on AMEX. It was tied to a block of 170K shares at $31.50 (adjusted) and looks like a new position. Separately, the Jan12 25 – 40 risk reversal trades at 90 cents, 1000X (tied on 53 delta).

Implied Volatility Mover

Cadence Design (NASDAQ:CDNS) is up a nickel to $6.83 and order flow is bearish for a second day. Today’s options volume is 13X the average daily, with about 16,000 puts and 1,035 calls traded on the San Jose, CA software maker. Most of the action is in February, including 7600 Feb 6 puts (91 percent Ask). Implied volatility is up 23 percent to 41.5.

Source: Wednesday Options Recap