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Sentiment

Major averages are holding modest gains on a day of very slow trading Monday. With the bond market closed and no economic data due to the Columbus Day holiday, the early focus was on the day’s stock news, which didn’t include much. Gymboree (GYMB) is rallying on news Bain Capital wants to buy the retailer. Investors are also awaiting the earnings-reporting season, with Dow components GE, Intel (INTC) and JP Morgan (JPM) due to release results this week. The earnings deluge will get into full swing next week. The Dow Jones Industrial Average is up 5 points heading into the final hour. The NASDAQ gained 8. Volume is on the light side. 5.4 million calls and 4.4 million puts traded thus far.

Bullish Flow

Intrepid Potash (IPI), which saw interest Friday after bullish crop data sparked a rally in agricultural commodities, is up 38 cents to $29.32. Options order flow is bullish for a second day as well, with 6712 calls and 331 puts traded through midday. The top trade is 1637 Jan 35 calls at $1 even per contract on ISE and an opening customer buyer, according to ISEE data. 5,158 now traded vs. 628 in open interest. Implied volatility is up about 4 percent to 50.5.

Top options trade so far today is in BofA (BAC) after a block of 50,000 Nov 15 calls traded at 12 cents on ISE. It’s an opening customer buyer, according to ISEE. Shares are down 2 cents to $13.15 and have now suffered a four-day 3 percent skid.

Bearish Flow

Chevron Texaco (CVX) loses 29 cents to $83.65 and a noteworthy trade this morning is a Jan 72.5 – 80 (2X1) put ratio spread, bought at 37 cents, 3500X on CBOE. It might have been initiated as a hedge after a 15.2 percent rally in the share price since late-August. The oil giant is due to release earnings, Oct 29, before market.

Implied Volatility Mover

CBOE Volatility Index (.VIX) is down 1.72 to 18.99, session lows, and dipping below 19 for the first time since late-April. The decline in the volatility index comes amid very quiet trading Monday due, in part, to the Columbus Day holiday and the absence of any government data. The S&P 500 has traded in a narrow 4.4 point range. Investors are also looking to the earnings-reporting season. Several Dow components (GE, INTC, JPM) release this week, but the floodgate doesn’t really open until next week. Expectations seem to be for steady market action during that time, which sometimes happens due to mixed trading as reports are released. Companies with good results see shares move higher, but those that miss see shares fall. Net result is mixed trading and low volatility for the S&P 500. However, some investors appear to be taking a contrarian view, as 133K calls and 74K puts traded on the volatility index so far. Top trade is Jan 32.5 – 40 call (1X2) backspread, bought at 25 cents, 7000X.

Source: Monday Options Recap