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Sentiment

Major averages have given up early gains and are sporting modest losses late-Tuesday. Economic data was in focus early after the latest Case Shiller Index showed a better-than-expected 4.3 percent increase in July (vs. 3.1 percent consensus) and separate data showed an index of Consumer Confidence up to 53.5 in August, from 51 the month before and a lot better than economists had expected (50.0). A third piece of data showed the ISM Index falling to 56.7 in August, down 62.3 in July and a bit worse than the 57.0 that economists had predicted. Investors seemed to give greater importance to the confidence numbers and the Dow Jones Industrial Average rallied on the news. However, end of month position squaring along with cautious trading ahead of key jobs numbers knocked the Dow back down in afternoon trading. With thirty minutes left to trade, the industrial average is down 15 points. The NASDAQ lost 12. The CBOE Volatility Index (.VIX) is off .35 to 26.86. Options volume remains on the light side, with about 5.1 million calls and 4.5 million puts traded so far.

Bullish Flow

Cisco Systems (NASDAQ:CSCO) touches a new 52-week low and was recently down 21 cents to $20.11. One strategist seems to be looking for a rebound and initiated an Oct 16 – 24 bullish risk reversal, collecting 2 cents, 5500X on CBOE. They bought calls, sold puts and might be offsetting an existing position. Both contracts have now traded more than 10000X. Implied volatility in CSCO is flat today at 33, compared to a 52-week high and low of about 45 and 20.

BofA (NYSE:BAC) is up 16 cents to $12.48 and a noteworthy spread in recent trade is a Jan 2012 17.5 – 25 call spread, apparently bought at 48.5 cents, 10000X on PHLX. It was tied to shares at $12.40 and might be a closing trade or a roll down in strikes. If opening, it's an ambitious play as the breakeven (at the Jan 2012 expiration) is around $18, or more than 44 percent above current levels.

Bearish Flow

ImmunoGen (NASDAQ:IMGN) loses 15 cents to $5.51 and options volume is 14X the average daily after an investor sold 5000 Jan 7.5 calls at 35 cents each. Shares plummeted 38.5 percent last Thursday after the FDA rejected the biotech’s fast tracking breast cancer drug. This call writer might be looking for shares to remain below 7.5, or 36.1 percent above current levels, through the January 2011 expiration. Implied volatility is down 8.5 percent to 64, compared to a 52-week high and low of about 153 and 42.

Implied Volatility Mover

Saks (NYSE:SKS) implied volatility surged after the Daily Mail, a British newspaper, said a consortium of investors might be looking to buy the retailer for $11 per share. Shares hit a morning high of $8.85 and were recently up $1.35 to $7.95. About 14,000 calls and 43,000 puts traded in the name so far, or 15X the average daily. Implied volatility rallied 32 percent to 80.

Source: Tuesday Options Recap