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Sentiment

Stock market averages are holding gains on a relatively slow news day Tuesday. Some of the early focus was on Chinese Trade Surplus data, which showed an increase to $11.4 billion in April and quadruple the expected. The domestic economic news included a report on import prices, which rose 2.2 percent in April and at the fastest pace since 2008. Economists were expecting a 1.6 percent increase. Later, a report on Wholesale Inventories showed a 1.1 percent gain for March. Economists were looking for a 1 percent increase. At the end of the day, data didn’t matter much. However, the action in the commodities market continues to get some attention. Crude oil added $1.23 to $103.78 in volatile trade ahead of tomorrow’s inventory numbers. Gold gained $14.3 to $1,517.50 an ounce and silver added $1.54 to $38.65. Heading into the final hour, the Dow Jones Industrial Average is up 83 points and near session highs. The tech-heavy NASDAQ gained 26.6. The CBOE Volatility Index (.VIX) slipped 1.18 to 15.98. Trading in the options is brisk and being heavily influenced by ex-dividend trades (see below). 12.2 million calls and 5.1 million puts traded so far.

Bullish Flow

Microsoft (NASDAQ:MSFT) shares hit a morning low of $25.25 on news the company is paying a hefty $8.5 billion for Internet phone service Skype. MSFT is down 8 cents to $15.75 in morning trading. Yet, while shares are lower, sentiment in the options market seems decidedly bullish. 61,000 calls and 20,000 puts traded on the software giant so far. May 26 calls, which are now 1 percent out-of-the-money and expire in 10 days, are the most actives. 12,380 traded and, with three quarters trading at the ask, it looks like call buyers are driving the flow. Jun 27, Jul 29, and an 25 calls are seeing active trading (predominantly at the ask) as well. Meanwhile, the May 25 is the most actively traded put after 3,715 changed hands. Implied volatility in Microsoft options is up 2.5 percent to 19, compared to a YTD high and low of 17 and 36.

Call volume in Boeing (NYSE:BA) is approaching 500,000 due to ex-div trading. Shares are up 70 cents to $80.34 and more than 200K May 75 calls have changed hands. PFE, LLY, BP, WMT, COST, and DD are seeing heavy ex-dividend related activity today as well. The volume will distort today’s put-to-call ratio. The equity only P/C ratio is .26, as 10.1 million calls and 2.6 million puts have traded across all the equities today. 3.4 million calls have traded in Pfizer alone.

Bearish Flow

DELL adds 19 cents to $16.38 and a Jan 11 – 15 put spread bought this morning at 86 cents, 7500X, was tied to 180K shares at $16.40. The spread might have been initiated as a hedge ahead of a May 17 (after market) earnings release.

Implied volatility Mover

BioMimetic Therapeutics (NASDAQ:BMTI) is reeling today on concerns about FDA approval of the company's Augment bone graft, which stimulates broken bones to grow back together. The FDA is expected to decide Thursday and post information on its web site today. Shares are down $4.73 to $8.66 on worries decision-makers might voice safety concerns and question the risk/benefits of the device. Meanwhile, options volume in BMTI is 15,000 calls and 17,000 puts. May 11 puts, which are now 21.5 percent in-the-money, are the most actives. 4,950 traded and some investor might be closing positions. Open interest is 5,564 and 94 percent of the volume traded on the bid. May 9 puts, Jun 11 puts, Jun 11 calls, May 10 calls and May 15 calls. Meanwhile, implied volatility is up 40 percent to 243, as investors now brace for next round of information from the FDA.

Source: Tuesday Options Recap