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Sentiment

Stock market averages were holding modest gains on a relatively slow day of trading Friday. Today’s economic news included a report on personal incomes and spending. While incomes rose .5% in March, spending increased by .6%. Both numbers were .1% better-than-expected. Later, the Chicago PMI showed a decline to 67.6 in April, down from 70.6 last month and below economist estimates of 68. A third stat was the University of Michigan Sentiment Index, which finished the month of April at 69.8, down from 69.6 mid-month and in-line with expectations. The earnings news was mixed as well. While Caterpillar (CAT), Merck (MRK), and Chevron (CVX) moved higher on earnings and are helping the industrial average move to higher ground, Microsoft (MSFT)was down 4.1% and weighing on both the Dow and NASDAQ on disappointing profit margins. Research In Motion (RIMM) shares lost 13.5% after the company issued a first quarter earnings warning on diminished Blackberry shipments. The Dow Jones Industrial Average is up and the tech-heavy NASDAQ also gained. The CBOE Volatility Index (.VIX) is up .20 to 14.82. Trading in the options market is running about the typical levels, with 7.4 million calls and 6 million puts traded so far.

Bullish Flow

Eastman Kodak (EK), which lost 10% on earnings news yesterday, is up 3 cents to $2.88. Early options trades in include a May-Oct 3.5 call spread, bought at 34 cents on AMEX, 5000X. It probably rolls a position out a few months. EK May 3.5 calls have open interest of roughly 20K.

SPDR Industrials (XLI) is touching new 52-week highs. Shares are up 22 cents to $38.76 and one investor buys 100,000 Jun 40 calls at 44 cents each. It probably adds to yesterday’s buying, which created 109,779 contracts of new open interest in XLI Jun 40 calls (see 4/28 color). The ETF, which holds GE (GE), United Tech (UTX) and the other industrial names from the S&P 500, is up 6.2% during the past eight days. Jun 40 calls are now 3.2 percent OTM with a delta of .30.

Bearish Flow

Dillards (DDS) adds 7 cents to $48.27 and an investor apparently sells the May 35 – 38 risk reversal at $10.25, 6000X, and the June 40 – 45 risk reversal at $4.15, 6000X. Looks like a roll, or closing out a position in May and opening a new bearish risk-reversal, possibly a collar adjustment.

Consumer Discretionary Select Sector Fund (XLY) moves to new 52-week highs today and is up a penny to $40.59. Meanwhile, a 27,650-contract block of Sep 34 puts is bought-to-open at 48 cents per contract on ISE. 28,800 now traded vs. 2,055 in open interest.

Implied Volatility Mover

Microsoft (MSFT) implied volatility is easing and options are heavily traded Friday. Shares are down 4.4% to $25.53 and easily the Dow's biggest loser after the company posted EPS numbers that topped Street views, but profit margins were short of expectations. So far, 359,000 calls and 212,000 puts traded in the software giant. The Weekly 26 calls, which saw heavy trading yesterday ahead of the news, are the most actives. Some investors are probably scrambling to salvage time value. The contract is now 1.8% out-of-the-money with less than an hour of life remaining. 67,000 contracts traded. May 26 puts, May 26 calls, May 25 puts and May 27 calls are seeing brisk trading as well, as investors jockey for position ahead of Microsoft's next short-term move. May options expire in three weeks.

Unusual Volume Movers

Bullish flow detected in AMR, with 34043 calls trading, or 2x the recent average daily call volume in the name.

Bullish flow detected in Jabil Circuit (JBL), with 6323 calls trading, or 3x the recent average daily call volume in the name.

Bullish flow detected in Avanir Pharmaceuticals (AVNR), with 16204 calls trading, or 3x the recent average daily call volume in the name.

Increasing volume is also being seen in Caterpillar (CAT), Goodyear Tire (GT) and Sprint Nextel (S).

Source: Friday Options Recap