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Sentiment

The bearish underlying tone continues Monday. After five consecutive weeks of losses, the Dow Jones Industrial Average opened lower in sluggish morning trading. With no economic data or earnings releases, investors found little information to guide the market after the weekend. Bank of America (NYSE:BAC), which slipped last week after Moody’s warned that it might cut the bank’s rating, is the Dow’s biggest loser. Shares are down 3.8 percent. Airlines are also seeing relative weakness after an industry trade group lowered its profit forecast for the sector due to higher fuel costs, unrest in the Middle East and the Japan crisis. Meanwhile, crude oil is down $1.29 to $98.93 and of Wednesday’s meeting of OPEC members. Gold has given up most of its early gains and is up $1.90 to $1,544.30 an ounce. Meanwhile, the Dow Jones Industrial Average is off 41 points and the tech-heavy NASDAQ lost 21.3. CBOE Volatility Index (.VIX) edged up .28 to 18.23. Trading in the options market is not very active today, with 6 million calls and 6.05 million puts traded so far.

Bullish Flow

Ford (NYSE:F) loses a nickel to $13.96 and 131,000 call options have traded on the automaker. 80 percent of the volume is due to one trader. They sold 35,000 of the January 12.5 calls, which are 11.6 percent in-the-money, at $2.185 to buy the following out-of-the-money call options (quantity, price). Jan 15 calls (7,500, @91 cents), Jan 16 calls (17,500, @62 cents), Aug 15 calls (35,000, @35 cents), Dec 15 calls (10,000, @82 cents). It might roll a position from the Jan 12.5s, to Aug, Dec, and Jan OTM calls, but open interest is sufficient to cover in every contract. So, some of the call purchases might be closing as well.

Bearish Flow

Gen-Probe (NASDAQ:GPRO) is taking a hit and implied volatility is moving up after the WSJ reported that Novartis (NYSE:NVS) is the last remaining bidder for the company. Apparently, there were hopes for multiple possible buyers of the San Diego-based research company. Shares are down $9.11 to $72.65 and the top trade in GPRO is a 6,100-contract block of August 85 calls at 65 cents each, which might be a liquidating sale. Jun 85 calls are the next most actives. 2,200 traded (63 percent Ask). Jun and Jul 90 call options are busy as well. Meanwhile, implied volatility has climbed 12 percent to 50.5.

Implied volatility Mover

Lorillard (NYSE:LO) shares are down and options volume is up after Morgan Stanley cut the stock to Equal Weight from Overweight. The downgrade comes on news a Court has allowed a tobacco racketeering lawsuit to move forward. Shares are down $6.89 to $100.84 and today’s options volume of 19K puts/7,500 calls is 4.5X the average daily for the name. July 90 puts, which are 10.75 percent OTM, are the most actives and might be seeing some liquidating trades. Open interest is 6,919 and, of the 5,800 traded, 75 percent traded on the bid. July 100 and 110 puts are the next most actives. Implied volatility is up 31 percent to 54.

Source: Monday Options Recap