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Sentiment

Stock market averages are holding modest gains in quiet trading Tuesday. After fears about an S&P downgrade of US credit sent stocks reeling Monday, the Dow Jones Industrial Average opened steady with help from better-than-expected earnings from J&J (NYSE:JNJ). JNJ shares are up 3.1 percent and one of twenty Dow stocks heading higher in the final hour. Meanwhile, the latest Housing Starts data surprised to the upside. According to the Commerce Department, builders broke ground at an annual rate of 549K in March, which was better than the 512K in February and also ahead of expectations (520K). Stocks traded mixed into midday and then found some modest buying interest in afternoon action. With an hour left to trade, the Dow is up 55 points and the tech-heavy NASDAQ gained 5. Overall options volume is in the light side, with 6.6 million calls and 5.2 million puts traded so far. (Note: no recap tomorrow, as I will be at the Chicago Board Options Exchange).

Bullish Flow

Blackboard (NASDAQ:BBBB) is up $12.74 to $49.90 on news it has hired Barclays to explore a possible buyout. Yesterday, 1,267 calls traded in the DC-based multimedia and graphics software company. Typical volume is 56 contracts. Monday's action included a 1,000-contract block of May 40 calls at 40 cents on the ISE, which was an opening buyer, according to ISEE data. 1,281 May 40 calls traded total and open interest increased by 1,233 to 1,485, which is the largest position in BBBB. The contract is now bid at $9.70.

The top options trade in the first hour of Tuesday’s session is a block of 28,000 May 13 calls at 17 cents per contract. It was sold as part of a May 13 – June 13 (2X1) call spread, in which the investor also bought 14,000 June 13 calls. Shares are extending a six-day losing streak and are down 13 cents to $12.29 Tuesday morning. Today’s spread trader might be rolling a position from the May 13s to one half the size in the June 13s.

Bearish Flow

Steve Smith writes for Whatstrading.com today that: Ecolabs, a MN based food inspection and sanitation firm, shares are up 16c to $50.88 and sees notable activity as the May $50/$45 put spread which traded 19,000 times at 75c in what looks like an opening purchase. This would create far and away the largest positions as no other strike, put or call, in any month has open interest greater than 500 contracts. This is potentially tied to stock ad could be positioning ahead of the April 26th earnings report.

Implied volatility Mover

Pre-earnings action in Hanesbrands (NYSE:HBI). Shares are up 54 cents to $28.88 and the focus is on the May 30 calls. 2,380 traded, including several lots this morning at the 70-cent asking price. Open interest is 676 and ISEE data confirm that investors are buying-to-open new positions. The contract is 3.9 percent out-of-the-money with a delta of .39. Earnings are due tomorrow morning. Implied volatility is up 26 percent to 39.

Source: Tuesday Options Recap