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Sentiment

Stocks moved broadly lower in morning trading, but market action turned mixed late-Thursday. Economic data was in focus early after the Labor Department said that filings for jobless benefits increased by 27,000 to 412K last week. Economists were looking for claims to hold at 385K. Meanwhile, the latest Producer Price Index for March increased by .7 percent, which was .4 percent less than expected. The weak data weighed on morning trading, but the market averages were little changed through midday. Trading has been choppy Thursday afternoon and the Dow Jones Industrial Average is now up 12 points - 122 points off its worse levels of the day. The tech-heavy NASDAQ is down 3 points ahead of earnings from Google (GOOG). The CBOE Volatility Index (.VIX) lost .59 to 16.33 and probing multi-week lows. Options are actively traded due to the expiration, with 7.4 million calls and 6.8 million puts traded so far.

Bullish Flow

The top equity options trades so far today are in Microsoft (MSFT), which is trading down 33 cents to $25.30. One investor bought 108,000 July 27 calls at 44 cents and sold 71,000 October 26 calls at $1.24. The action likely rolls a position opened in mid-January, when the July 27 calls were sold-to-open and Jan11 $25 calls were bought-to-close (see 1/14 color). A Microsoft shareholder might be initiating these spreads as part of buy-write strategy.

Cisco Systems (CSCO) loses 11 cents to $17.14 and it looks like one investor sells Jun 16 puts to buy the Jun 18 – 20 call spread, paying a penny on the three-way, 15000X on ISE. Sentiment data is consistent with buying the call spread, selling puts. Cisco shares rallied 4.9 percent on April 6, the day after the company’s CEO vowed major changes in the organization of the networking giant. However, shares have lost ground in the six subsequent trading sessions and have now erased the entire gain. Today’s spread trader might be looking for a rebound through mid-June.

Bearish Flow

Yongye International (YONG) loses 34 cents to $4.60 and 2,700 puts traded in the Chinese, ag chemical maker. May 4 puts are the most actives. 960 traded (93 percent ask). Similar action in April 5, May 6 and July 4 puts. Shares hit 52-week highs of $9.49 in early-November, but have been trending lower since that time and hit a new 52-week low of $4.43 on Friday. Today’s order flow seems to reflect concerns about additional losses in the weeks ahead.

Implied volatility Mover

CBOE Volatility Index (.VIX) loses .10 to 16.82 despite disappointing claims data and choppy market action Thursday morning. S&P 500 fell early and is down 3.9 points after the Labor Department said filings for jobless benefits increased by 27,000 to 412K last week. Economists were looking for 385K. Trading has been orderly, however, and VIX edged lower despite weakness in the broader market. The options expiration might be affecting the action, as today is the last day to trade SPX April options. Meanwhile, a noteworthy recent trade in the VIX is a May 21 – 25 (1X2) call ratio spread at 20 cents, 15000X. Looks like a debit was paid to sell the 21 calls and buy twice as many 25s. It might be closing.

Source: Thursday Options Recap