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Sentiment

Stock market averages battled back from morning weakness and are sporting gains Wednesday. The table was set for cautious trading early after a report on Durable Goods showed a drop of 3.6 percent in April. Economists were looking for a decline of about 2 percent. Meanwhile, a handful of retailers, including Costco (NASDAQ:COST), American Eagle (NYSE:AEO), and Collective Brands (NYSE:PSS), are trading lower on earnings. Yet, the Dow Jones Industrial Average is up 72 points late in the day with help from Exxon (NYSE:XOM) and Chevron (NYSE:CVX) after crude oil gained $1.66 to $101.25 on bullish weekly inventory data. Some of the cyclical names, like Caterpillar (NYSE:CAT), DuPont (NYSE:DD), and Boeing (NYSE:BA), are showing leadership within the Dow as well. Meanwhile, the tech-heavy NASDAQ added 22. The CBOE Volatility Index (.VIX) slipped 1 point to 16.82. Trading in the options market is slow for a second day. 7.4 million calls and 5.4 million puts traded so far.

Bullish Flow

Tesla Motors (NASDAQ:TSLA) gained $1.38 to $28.10 and options volume is approaching 5X the average daily on news the company’s CEO will buy 1.5 million shares and a Daimler affiliate will purchase 644K. The stock buys are part of a follow-on to a secondary offering of common stock. In options action, 16,000 calls and 3,250 puts have traded on the San Carlos, CA electric vehicle maker. June 30 calls are the most actives. Volume is approaching 8,000 and 61 percent traded at the ask. July 28 and June 30 calls are seeing brisk trading as well. Upside call buying has implied vols increasing by about 20 percent to 60.

Powershares Bullish Dollar Fund (NYSEARCA:UUP) adds 3 cents to $21.75 and one investor pays 15.5 cents per contract for Jun 22 calls, 10000X. Another 15,000-contract block trades at 16 cents, which was also bought. 25,237 contracts now traded and is likely to add to existing interest, which is already 260K and the largest position in the ETF. Shares of the bullish dollar fund have gained 50 cents since May 5, primarily due to weakness in the euro.

Bearish Flow

Impressive spread in the SPYders, as shares add 88 cents to $132.88 late-Wednesday. Looks like the Jul 112 - 119 - 126 put butterfly spread is bought at 55 cents, 48800X. This spread is possibly a short-term hedge, as it makes its best profits if SPY falls to $119 through the July expiration, which represents a 10.4 percent decline in the S&P 500 over the next 51 days.

Implied volatility Mover

AIG is off $1.04 to $28.42 and falling to new 52-week lows today after pricing a public offering at $29 per share. The top options trade so far today is an 11000 contract block of Jun 35 puts at $6.70, which was sold along with stock and probably a closing of deep OTM puts. 49,000 calls and 37,000 puts now traded in AIG. Implied volatility has eased 8 percent to 34, now that the event risk has passed.

Source: Wednesday Options Recap