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Sentiment

Major averages slipped on disappointing economic news and are trading lower late Thursday. Data released before the bell showed weekly jobless claims increasing by 13,000 in the period ended October 9. Economists were expecting an increase of just 1,000. Two separate reports showed the PPI up a hotter-than-expected .4 percent (vs. .2 percent consensus) and the trade deficit widening to $46.5 billion (vs. $44.5 billion consensus). The Dow Jones Industrial Average slumped on the data and is off 53 points, with help from notable weakness in BofA (NYSE:BAC) and JP Morgan (NYSE:JPM). The tech-heavy NASDAQ lost 16. With less than an hour to trade, the CBOE Volatility Index added 1.86 to 20.93 ahead of retail sales, UofM sentiment and manufacturing data Friday morning. Trading in the options market is brisk due to the expiration. 12.5 million calls and 7.5 million puts traded so far.

Bullish Flow

Yahoo (NASDAQ:YHOO) shares rallied to high of $16.76 this morning and were recently up 96 cents to $16.21 amid media reports the Internet giant might be the target of a buyout. According to Reuters, a source said that 'several private equity firms have approached media companies including News Corp (NASDAQ:NWS) and AOL (NYSE:AOL) about a possible acquisition of Yahoo.' Options volume is running 3.5X the average daily, with 106K calls and 43K puts traded so far. The top trade is an opening buyer of 9,750 Nov 14 puts at 25 cents per contract on ISE, according to ISEE sentiment data. Another noteworthy trade is the Jan 15 put ? 17.5 call bullish risk reversal bought at 6 cents, 3100X, and at 27 cents, 3200X. Meanwhile, implied volatility rallied 24 percent to 51. Yahoo earnings are slated for Oct 19, after market.

Total options volume is respectable due to the expiration, with 12.5 million calls and 7.5 million puts traded so far. However, while the put-to-call ratio is only .6, it's being distorted by heavy ex-div activity in Vale (NYSE:VALE). 3.25 million contracts have traded in name. Therefore, excluding VALE, the day's call volume is 9.25 million.

Bearish Flow

H&R Block (NYSE:HRB) shares are under pressure after the company announced plans to buy TaxACT maker 2SS Holdings. Investors don't seem pleased with the move, as HRB is down $1.27 to $12.43 and 28K puts traded on the tax preparation company through midday. The put volume is 16X the expected and compares to call volume of 4650 contracts. Jan 2012 puts at the 7.5 line are the busiest, as some players seem to be buying the deep out-of-the-money puts on concerns about additional weakness through 2012. The top trade is 5000 at the 95-cent ask price. Oct 12.5, Oct 14, and Jan 11 puts are busy as well. Implied volatility is up about 11.5 percent to 57.

Implied Volatility Mover

St. Joe (NYSE:JOE) implied volatility is still rising, as shares spend a second day behind the woodshed. After falling nearly 10 percent on bearish comments from hedge fund manager David Einhorn Wednesday (see 10/12 color), shares are down another $2 to $20.16 today and options volume is 6X the average daily. 13K puts and 5,930 calls traded so far. Nov and Jan 20 puts are again the most actives. Implied volatility is up 10 percent to 55, up 67 percent since Tuesday.

Unusual Volume Movers

Bearish activity detected in Skyworks Solutions (NASDAQ:SWKS), with 8403 puts trading, or 3x the recent average daily put volume in the name.

Bullish flow detected in Ambac Financial Group (ABK), with 30065 calls trading, or 6x the recent average daily call volume in the name.

Bearish activity detected in H&R Block (HRB), with 16721 puts trading, or 4x the recent average daily put volume in the name.

Increasing volume is also being seen in eBay (NASDAQ:EBAY), PMI Group (PMI), and MBIA (NYSE:MBI).

Source: Thursday Options Recap