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Sentiment

Stocks are holding gains on a third day of slow trading this week. With no earnings of significance or economic data to guide trading, the Dow Jones Industrial Average opened little changed in sluggish morning trading. A modest round of buying interest had surfaced by midday. Heading into the final hour, the industrial average has traded in another narrow 55-point range and is up 40 points. The NASDAQ has added 7.9. The CBOE Volatility Index (.VIX) slipped .47 to 17.05. Trading in the options market is slow. 4.3 million calls and 3.4 million puts traded so far.

Bullish Flow

18,000 calls and 9,150 puts traded in Rare Element (NYSEMKT:REE), as the rally in the rare earth names (MCP, SHZ, AVL) continues for another day. REE is up $1.95 to $14.89 and now up 46.6 percent on the week. Most of the options action is in smaller lots. The top trade is 388 April 11 puts at $1.60 when the market was $1.40 to $1.60. It was part of a sweep of 700 contracts and looks buyer-initiated. However, there’s been a lot more action on the call side of the action, with Jan 14s and 15s leading the flow. Implied volatility is up another 5 percent to 107.5, the day after China announced plans to cut quotas on rare earth materials.

Speculative frenzy continues and has now infected Qiao Xing Universal Resources (XING), a Huizhou City minerals company. Shares are up 54 cents to $2.39 and today's options volume is 8,000 calls and 300 puts. Jan and Jun 25 calls are the most actives, with more than 3,000 traded in each and three quarters trading at the ask. Players are snapping up bullish positions, possibly in reaction to news that the company has posted pictures of one of its lead-zinc-copper mines. The company is also launching a new web site in early-January. It will replace the existing website that currently has the pictures in question (which must have been really nice pics because the stock is up almost 30 percent). Implied volatility is up 1 percent to 86.

Bearish Flow

The top options trades so far today are in the Financial Select Sector Fund (NYSEARCA:XLF), which is down a penny to $16. One strategist apparently bought a Mar 13 – 15 put spread at 30 cents, 30000X on PHLX. Open interest is sufficient to cover, but this is probably a new position and possibly a hedge heading into 2011.

Implied Volatility Mover

Sears Holdings (NASDAQ:SHLD) is up $4.46 to $74.48 and the best gainer in the NASDAQ 100 on 3.5X the average daily options volume. No news on the ticker. It has high short interest. Yesterday, the retailer announced plans to launch on online service that allows Kmart and Sears customers to download entertainment online. The strength is perhaps a delayed reaction to the news, and fueled by short-covering. Meanwhile, in options action, 9,850 calls and 5,400 puts traded. Jan 75, 80 and 85 calls are the most actives, then followed by Jan 67.5 and 72.5 puts. Implied volatility is up 18 percent to 46. Note that peer BJ is also seeing relative strength Wednesday.

Source: Wednesday Options Recap