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Sentiment

A global equity market rout sent stocks sharply lower Thursday. The sell-off began on Wall Street Wednesday afternoon when the Federal Reserve concluded its latest meeting on monetary policy and, while officials unveiled a highly-anticipated program to buy longer-term Treasurys, they also offered a grim assessment of economic conditions. Fear is that the Fed is now helpless in the face of a slowing economy. Meanwhile, concerns about the European Debt Crisis and possible mounting trade tensions after Brazil unexpectedly raised tariffs add to the uncertainty. Following sharp declines in overseas markets overnight, sellers surfaced on Wall Street again Thursday morning and there have been no meaningful rally attempts heading into the final hour. The Dow Jones Industrial Average is down 490 points and the tech-heavy NASDSAQ lost 105. CBOE Volatility Index (.VIX) jumped 6.03 points to 43.35. Trading in the options market is active, with 11.6 million calls and 13.5 million puts traded so far.

Bullish Flow

Yahoo (NASDAQ:YHOO) with relative strength and early call buying after Stifel Nicolaus upped the stock to Buy and raised the price target to $18. Firm sees probability of a buyout now at 80 percent. Shares are up 21 cents to $14.17 and options volume in the first 5 min is 7,920 calls and 1,110 puts. Top trade is a 4830-contract block of Oct 18 calls at 27 cents when the market was 22 to 27 cents. 5,000 now traded. Oct 15, Weekly 14 and Jan 19 calls on Yahoo are seeing interest as well.

Pfizer (NYSE:PFE) loses 23 cents to $17.61 and a Jan13 12.5 – 22.5 bullish risk-reversal trades on the drugmaker at 36 cents, 7500X. The bullish long-term play comes after a 17.8 percent since May, when the stock finished the month near a 52-week high of $21.45.

Bearish Flow

Big Print in BofA (NYSE:BAC), which is down 26 cents to $6.12 and off 11.5 percent since Moody's downgraded the bank yesterday. One player sold a 100,000-contract block of Jan 12.5 calls at 4 cents per contract. It's likely a closing transaction. The Jan 12.5 call on BofA is now 51 percent OTM and has 766,154 in open interest, which is the largest position in BofA options. 284K calls and 203K puts now traded on the bank through midday. Meanwhile, implied volatility is up 8.5 percent to 85, but still well below the 52-week high near 150 set on 8/8.

Implied volatility Mover

CBOE Volatility Index (.VIX) is making a run to session highs in the final hour. VIX recently touched 43.35 and is up 5.6 to 42.92. VIX is rallying amid heavy trading in the SPX pit. 682K puts and 251K calls traded on the S&P 500 Index so far. The twelve most actives in the product are put options, being led by Oct 1140 puts. The S&P is down 45.34 to 1,121.42 and Oct 1170, Sep Qtrly 1100, and Dec 900 puts are the next most actives. Trading in VIX options is active as well. 375K calls and 886K puts traded on the VIX so far. The top trade is an Oct 25 - 30 call spread at $4.50, 27443X and perhaps a position adjustment or closing trade after a 39 percent rally in spot VIX so far this week.

Source: Thursday Options Recap