Sentiment
Market action is mixed on a relatively slow news day Tuesday. No economic stats were on the calendar and players are in wait-and-see mode ahead of earnings. Although Alcoa (AA) unofficially kicks off the reporting season after the closing bell, the floodgate on third quarter earnings doesn’t open until next week. Meanwhile, Asia’s equity markets rallied overnight, but stocks consolidating recent gains across the Eurozone. Similarly, after a 330-point surge Monday, the Dow Jones Industrial Average is down 20 points. The tech-heavy NASDAQ has added 14. With thirty minutes left to trade, CBOE Volatility Index (.VIX) is little changed at 33.04. Overall volume is light, with 6.2 million calls and 6.8 million puts traded across the exchanges so far.
Bullish Flow
Nice timing on spread purchases in Goldman Sachs (GS) this morning. Shares have added 45 cents to $96.59 and Oct 105 - 110 call spreads were being bought on the investment bank multiple times this morning on ISE. 2500 traded for 57 cents about 9 minutes after the opening bell. Around the same time, 1039 traded for 54 cents, 1000 for 54 cents, and 1000 more for 51 cents. Sentiment data indicate that the spread was bought-to-open 6000X before 10:00 ET. Shares are up almost $2 since then and the spread is about 75 cents. The stock opened at $94.56 and hit a morning low of $94 after Citi cut Q3 earnings estimates on GS. The investment bank is due to report the morning of October 18 and four days before the October options expire.
Morgan Stanley (MS) adds 7 cents to $15.36 and options on the bank are actively traded today. 38,000 calls and 21,000 puts so far. One player sold 5000 Oct 14 puts at 47 cents and is possibly closing a position, as the contract is 8.9 percent OTM and expires in 10 days. Oct 18 calls are the most actives. 14,420 traded, including a an opening buyer of 6746 contracts for 22 cents on ISE. Nov 16 calls are the next most actives. 6,600 traded (97 percent Ask). Overall flow in MS seems somewhat bullish today and possibly related to a NY Times story that suggests MS might be a good fit for Wells Fargo (WFC). The stock hit a 52-week low of $11.58 intraday one week ago and is up 32.7 percent since that time. However, shares remain well below the 52-week highs of more than $31 seen in mid-Feb. Earnings come into play the morning of Oct 19.
Bearish Flow
STEC loses 27 cents to $10.66 and 3,200 puts traded on the stock in the first 5 min. of Tuesday’s trading session. The action is in the Nov $11 and Jan $10 puts and has been in smaller sizes. The top trade is a 284-lot of Nov 11 puts at $1.13 when the market was $1.12 to $1.13. 1,360 traded. Similar activity seen in the Jan puts, with another 1,113 traded. No news on the ticker and implied volatility in STEC options is up 8.5 percent to 66. Shares are off today and snapping a five-day 14.1 percent winning streak. Earnings come into play late-Oct/early-Nov.
Implied volatility Mover
VIX adds .25 to 33.27, but is down 26.8 percent since last Monday. Options volume in the VIX pit is noteworthy this morning, as 234,000 puts and 79,000 calls traded on the product so far. The top trade is a 55,550 contract block of Nov 25 puts at 40 cents when the market was 30 to 45 cents and more recent trades include a buyer of 10,000 at 42.5 cents. Volume in VIX Nov 25 puts is now approaching 100K, which makes it today’s most active option. VIX options action also includes a 24000-contract block of VIX Oct 32.5 puts at $1.02 when the market was 90 to $1.05 and, separately, a buyer of 18,000 Jan 25 puts at $1.075. The overall flow seems to reflect some expectations that VIX will move back towards the mid-20s in the weeks ahead. It might be a play on the earnings-reporting season — which sometimes produces mixed market action when shares of companies that beat Street estimates move higher while those that miss see their shares fall. Net result is less volatility in the market averages like the S&P.
