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Sentiment

The Dow Jones Industrial Average is set to snap its seven day winning streak despite better than expected earnings from two of its components. Disney (DIS) shares are up 4.8 percent after the media giant posted its results late-Tuesday. Coca Cola (KO) edged higher after its results, released Wednesday, topped Street views. However, JP Morgan (JPM) is down 2.2 percent and the biggest loser in the Dow amid weakness in the big banks. BofA (BAC) and Citi (C) are also in the red. 16 Dow stocks are lower and 14 trading higher late-Wednesday. Meanwhile, with no economic data on today’s calendar, some of the focus is on Federal Reserve Chairman Ben Bernanke and his testimony on Capitol Hill. The Fed head warned that unemployment is likely to remain high because companies are not increasing hiring despite improving economic conditions. However, there were no real surprises from Bernanke and today’s weakness on Wall Street might have been inspired by a round of profit-taking rather than anything on the news front. After a seven-day 394-point rally, the Dow is down 15 points. The tech-heavy NASDAQ lost 8.5 ahead of earnings from tech bellwether Cisco Systems (CSCO). The CBOE Volatility Index (.VIX) added .61 to 16.42. Trading in the options market is running about the typical levels, with 8.1 million calls and 7.1 million puts traded so far.

Bullish Flow

Baidu.com (BIDU) calls are seeing heavy trading today. Shares touched a new 52-week high and are up $3.76 to $123.60 after HSBC upgraded the stock to Overweight. 51,000 calls and 17,000 puts traded on the Chinese Internet company through midday. The Weekly, which expire 2/11, $125 calls are the most actives. 7,875 traded. Momentum players are also showing interest in Feb 120, 125, and 130 call options. Shares have performed well lately. BIDU rallied 9.3 percent on 2/1 after earnings were reported and are up an additional 4.1 percent since that time.

Another day of heavy trading in Alcatel-Lucent (ALU) calls ahead of earnings. 46,000 calls and 5,250 puts traded yesterday, or 6X the recent average daily volume. February 3.5s were the most actives and today's open interest data indicating that investors were opening new positions. March, June and September 3.5 calls saw increasing interest as well. Monday, 42,000 calls and only 435 puts traded in the name. February 3.5 calls were again the most actives. Shares are flat at $3.57 heading into the final hour and 30,000 calls, 1,220 puts traded. February 3.5s top the most actives, again, and have traded 7,840X. Mar, June and Sep 3.5 calls are also busy. Implied volatility is around 49, not much changed today, but up 22.5 percent from a week ago. The Paris-based communication company is due to release results tomorrow.

Bearish Flow

Sara Lee (SLE), which added 1.3 percent after reporting earnings yesterday, is down 15 cents to $17 early Wednesday. Meanwhile, 17,300 Mar 16 puts traded (99 percent Ask). Another 1,032 Mar 17 puts changed hands (97 percent Ask). Shares have been under pressure since 1/25 when the company announced that it was planning to split into separate companies rather than put itself up for sale. Implied volatility is up 4 percent to 28 this morning and today’s options flow seems to reflect concerns about additional losses in SLE from now through the March expiration (37 days). (UPDATED AT 10:23 ET).

Implied Volatility Mover

CBOE sees a spike and is trading up $1.93 to $26.40 midday after NYSE Euronext (NYX) and Deutsche Boerse shares were halted. Bernecker Borsenbriefe, a German newsletter, says merger talks between the two exchanges are in advanced stages (per Bloomberg). The talk comes the same day that the London Stock Exchange made a $3.2 billion bid for the Toronto Exchange. The speculation has triggered a rally across the stock, options and futures exchanges (NDAQ, CME, ICE), including the CBOE, which has been mentioned as a potential takeover candidate repeatedly in the past. Shares are trading higher and options action is heating up as well. 5,445 calls and 1,800 puts traded so far. Feb 25, 26 and 27 calls are the most actives. Implied vols up 21.5 percent to 34. The exchange, which is one of the largest of nine options exchanges, is due to release earnings Thursday morning.

Source: Wednesday Options Recap