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Sentiment

Stock market averages gave up early gains and were in the red late Thursday. Positive economic news helped set the tone for strength at the open after data released early showed retail sales up .1% in June, which was better than the .2% decline that economists had expected. Meanwhile, the Labor Department reported that the Producer Price Index (PPI) declined by .4% last month, twice as much as expected. Separately, the Labor Department also said that jobless claims declined by 22K to 405K last week. Economists were looking for a decline to 410K. Overall, the economic news was positive and stock market averages moved higher when the opening bell rang on Wall Street. However, trading turned a bit more cautious through mid-morning after Federal Reserve Chairman Bernanke delivered a second day of testimony to Congress and explained that Fed officials are not planning any immediate policy action “at this point." A Moody’s warning about possible downgrade to U.S. debt late-Wednesday, ongoing bickering and lack of progress related to the debt ceiling, and uncertainty about EU plans for Greece also seem to be weighing on Wall Street. With about an hour left to trade, the Dow Jones Industrial Average was down 23 points and the tech-heavy Nasdaq lost 30. CBOE Volatility Index (.VIX) fell to 19.35 early, but recaptured the 20 psyche level and was up .86 to 20.77. Options expiration is also a factor today. 7.5 million puts and 8.2 million calls traded across the nine options exchanges so far.

Bullish Flow

JP Morgan (NYSE:JPM) Jul 40 call is the most actively traded equity option early Thursday, as shares rally around earnings news. JPM reported a second quarter profit of $1.27 per share on $27.41 billion in revenues. Analysts were expecting $1.20 on $25.26 bln. Shares are up $1.15 to $40.77 and July 40 calls, which are now 77 cents in-the-money and expiring after tomorrow, are the most actives. 13,170 have changed hands. Jul 41 and 42 calls are seeing brisk trading as well. Jul 39 and 40s are the most actively traded puts on the bank. 36,000 calls and 15,000 put traded in JPM during the first 10 minutes. Implied volatility in the options is down 17% to 26.5, compared to a 52-week high and low of 36.5 and 17.5.

Sohu.com (NASDAQ:SOHU) trades up $1.34 to $79.63 on heavy volume on a story hinting of a possible spin-off of its online video unit. It's apparently on the Shanghai Daily web site (unconfirmed). Options action in SOHU is picking up as well. Jul 80s, which are almost at-the-money and expiring after tomorrow, are the most actives. 3,145 traded (57% Ask) against 2,532 in open interest. Jul 82.5 calls are seeing interest as well, with another 1,725 traded. Total options volume in SOHU is 9,700 calls and 2,400 puts.

Bearish Flow

STEC Inc. (NASDAQ:STEC) sees relative weakness and increased put activity. Shares are down 3% to $17.12 and options volume includes 17,000 puts/1,940 calls. The action is scattered across Jul, Aug and Nov puts. Nov 16 and 17s are the most actives and seeing about half the volume traded on the bid. Aug 16, Nov 15 and Nov 14 puts are the next most actives and the flow is mostly at the offer. So the action seems mixed. However, implied volatility is up 19.5% to 66. No news to explain the relative weakness and high put volume in the Santa Ana, CA, data storage device maker today. It might be earnings related. Shares tumbled nearly 20% on 5/11 after earnings were last reported.

Implied Volatility Mover

CBOE Volatility Index (.VIX) is down .55 to 19.36 and Jul 25 calls on the volatility index are among today’s most actives early Thursday. One player bought 20,000 at 20 cents each. 50,800 traded. The premium purchases are possibly short-term bets that market volatility will remain high over the next few days. VIX July options expire next Wednesday. Open interest in the contract is 205,553 and the second largest in VIX (behind Jul 30 calls). So today’s flow is possibly closing trades as well.

Unusual Volume Movers

Bullish flow detected in Murphy Oil (NYSE:MUR), with 4,248 calls trading, or 5x the recent average daily call volume in the name.

Bearish activity detected in RF Micro Devices (RFMD), with 6,457 puts trading, or 5x the recent average daily put volume in the name.

Bearish activity detected in Marvell Technology (NASDAQ:MRVL), with 17,459 puts trading, or 4x the recent average daily put volume in the name.

Increasing volume is also seen in Qualcomm (NASDAQ:QCOM), Sara Lee (SLE) and Corning (NYSE:GLW).

Source: Thursday Options Recap