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Sentiment

Stock market averages were holding modest gains on a relatively quiet day of trading Tuesday. The early economic news was disappointing after the Case Shiller 20-city home price index showed a 4.5% decline for June and the Conference Board said its index of Consumer Confidence fell to just 44.5 in July. Economists were expecting a decline to 52.0 from 59.2 in the prior month. The Dow Jones Industrial Average was in the red on the data, but then moved back into positive territory through late-morning. From there, the tone of trading had a wait-and-see feel heading into the release of minutes from an Aug. 9 FOMC meeting. The text showed that some members are leaning toward further accommodation because unemployment remains high and inflation is low. There was no new information in the minutes, however, and there was therefore little market impact. Trading in the options market was light today. 6.3 million calls and 6.2 million puts traded across the exchanges so far.

Bullish Flow

Bullish sentiment is building in DryShips (NASDAQ:DRYS) ahead of earnings. Shares are up 16 cents to $3.25 and on a five-day 25.6% winning run higher. Options volume in the dry bulk shipper includes about 10,000 calls and 3,000 puts so far. Sep 3.5 calls, which are now 7.7% OTM and expiring in 17 days, are the most actives. 1,711 traded. Sep 3, Sep 4, and Oct 4 calls are seeing interest as well. Implied volatility is up about 1.5% to 81.5 ahead of the results, due after the closing bell today.

CoreLogic (NYSE:CLGX) adds $2.16 to $10.95 and options on the stock are heavily traded after the Santa Ana, CA, property, financial and consumer data provider said it has hired an advisory firm to explore a possible merger or sale. Shares have now rallied 43.3% from a 52-week intraday low of $7.64 set one week ago and players appear to be anticipating additional upside. Options volume in CLGX so far today includes 11,000 calls and 700 puts. Typical volume through mid-morning is about 100 contracts. January 12.5 calls, which are 14.2% out-of-the-money, are the most actives. 4,240 traded. April[2012] and Oct 12.5 calls are the next most actives. Sep 10, Oct 10 and Jan 15 calls are seeing interest as well.

Bearish Flow

The top options trades so far today are in the iShares Emerging Markets Fund (NYSEARCA:EEM), which is up a nickel to $41.88. EEM Dec 34 – 40 put spread trades at $1.34, 58,000X on ISE. At about the same time, the Sep 41 – 46 put spread trades on the emerging markets ETF at $3.23, 50,500X on ISE. Taken together, and with help from ISEE data, the four-way appears to be a customer rolling out of a Sep put spreads and into a new position in December. If so, it probably closes out a position opened in late-May when the Sep 41 – 46 put spread was bought at $1.39, 50,500X (see 5/26 color). Shares are down 10.6% since that time and 46 leg of the spread, which was 1.8% OTM at the time, is now 8.9% in-the-money. Dec 40 puts are 4.5% OTM and, so while the strategist collected a nice profit on the Sep spread, they seem to be extending the bearish play an additional three months and bracing for additional losses in the emerging markets through mid-December.

Implied Volatility Mover

Sirius XM Radio (NASDAQ:SIRI) is flat at $1.81 and a 6,840-contract block of December $2 calls trades on the satellite radio operator Tuesday morning at 20 cents on ISE. Sentiment data indicate an opening seller. 10,000 traded, including another of 2,760-contract block on the 19-cent bid. Dec 2 call on SIRI is 10.5% out-of-the-money with a delta of .47 and 19,616 in open interest. The market is now 18 to 21 cents, compared to today’s VWAP (average price traded) of 19.8 cents. Shares are up 7.1% in the past week, but 25.8% below the 52-week high of $2.44 seen in late-May. Writing of $2 calls seems to reflect expectations for limited upside in shares through mid-December. Earnings were last reported on Aug 2. Meanwhile, premium selling has implied volatility in SIRI options down another 6% to 65 and now well below (~35%) the extremes seen in early August, when it soared to 100%.

Unusual Volume Movers

Bullish flow detected in Viacom (NASDAQ:VIA), with 3,119 calls trading, or 2x the recent average daily call volume in the name.

Bearish activity detected in Boyd Gaming (NYSE:BYD), with 5,369 puts trading, or 4x the recent average daily put volume in the name.

Bearish activity detected in Silvercorp Metals (NYSE:SVM), with 12,853 puts trading, or 2x the recent average daily put volume in the name.

Meanwhile, high options volume is being seen in Monsanto (NYSE:MON), JDS Uniphase (NASDAQ:JDSU) and iShares Japan Fund (NYSEARCA:EWJ).

Source: Tuesday Options Recap