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Sentiment

Stocks are broadly lower on worries about Eurozone debt problems. Trading was volatile in Europe Monday after Standard & Poor’s lowered Italy’s credit rating to negative. The news sent stock benchmarks more than 3 percent lower in Italy and other European markets fell in sympathy. Meanwhile, in the US, it’s been a slow news day with no economic data or earnings of broad market significance to guide the action. Crude oil has given up $2.50 to $97.60, but volatility in global financial markets seems to be giving gold a lift. The precious metal is up $7.80 to $1,516.70. The buck is also bid. The dollar index gained 1 percent. Meanwhile, the Dow Jones Industrial Average is down 120 points, but 60 points off session lows. The tech-heavy NASDAQ lost 38. Trading in the options market is on the light side, but reflects the cautious underlying tone. 6.6 million calls and 6.7 million puts traded across the nine options exchanges so far.

Bullish Flow

KKD Krispy Kreme (NYSE:KKD) adds $1.63 to $8.03 after the donut shop reported a quarterly profit of 13 cents per share, which beat Street estimates by four pennies. Options on Krispy Kreme are seeing brisk trading as well. 10,000 calls and 1,260 puts so far. The top trades of the day appear to be a spread, in which 2,000 August 7.5 calls were sold and 2,000 August 10 calls bought, which is possibly rolling of a bullish position from in-the-money to out-of-the-money call options. Jun 7.5, Nov 7.5 and Nov 10 calls are seeing interest as well. Meanwhile, implied volatility in KKD is down about 11.5 percent to 55.5.

BofA (NYSE:BAC) loses 16 cents to $11.42 and the Aug 12 - 13 call spread is bought on the bank at 24 cents, 20000X. Open interest is sufficient to cover in both contracts. So, it might be closing or a roll. Or, it might be a bullish play targeting a move to $13 and beyond in BAC shares through the August expiration.

Bearish Flow

SPDR Gold Trust (NYSEARCA:GLD) adds 14 cents to $147.63 after gold gained $5.60 to $1,514.50 an ounce. In options action, a noteworthy recent trade in GLD is a Jun 140 – 145 put spread at $1, 20000X on ISE. Sentiment data indicate half of the spread was bought-to-open and this looks like a bearish play on gold, or perhaps a short-term hedge. The spread offers a $4 pay-off if shares fall to $140 or below through the Jun expiration, which represents a 5.2 percent drop in the price of gold over the next 25 days.

Implied volatility Mover

CBOE Volatility Index (.VIX) hit a morning high of 20.03 and its best levels in two months early Monday. Implied volatility is higher marketwide as anxiety levels are elevated after S&P downgraded Italy's credit rating to negative from stable. The move adds to recent worries that the European Debt Crisis is still worsening. Stock benchmarks are sharply lower across the Euro-zone and volatility is spilling over onto Wall Street. VIX is now up 2.17, or 12.4 percent, to 19.60 and early trades in the volatility index include a1740-contract block of VIX Jul 22.5 calls at the 2.20 ask price. 12,000 calls and 3,000 puts traded in the first ten minutes of trading.

Source: Monday Options Recap