Seeking Alpha
Profile| Send Message| ()  

Sentiment

Stock market averages battled back from midday weakness and are posting modest gains late-Monday. With no domestic economic to guide the morning action, the early focus was back on the faltering Eurozone. Concern about rising bond yields in Italy following reports Prime Minister Berlusconi is possibly set to step down weighed down the euro and triggered choppy trading across Europe’s equity markets. In the US, the decline never really gathered any momentum and buyers stepped to the table in afternoon trading instead. Volume is light and without much conviction, however. With thirty minutes left to trade, the Dow Jones Industrial Average is up 40 points and the tech-heavy NASDAQ has added 1.3. CBOE Volatility Index (.VIX) added .20 to 30.36. Overall options volume is light, with 7 million calls and 5 million puts traded so far.

Bullish Flow

Current total option volume of 6.5Million contracts through midday, putting us on pace for barely 12million contracts, the slowest day since last May. Div plays in PFE and AEP may help, but currently flow in most sectors is very light, with Telco and Homebuilders relatively ahead, but the normally busy financials and IT very quiet at about 75% of normal levels. Underlying volume is also dead, at 66% of normal for this time of day.

Cisco (CSCO) loses 12 cents to $17.91 and a Jan 17.5 – 19 strangle is sold on the networking company at $1.59, 4000X. The position is possibly closing, as both contracts have substantial open interest, and seems to be bet that shares will hold between $17.5 and 19 through the January 2012 expiration. After falling to 52-week lows of $13.73 on Aug 10, CSCO has been grinding it out over the past few months and is up 30.6 percent since that time. Meanwhile, implied volatility in the options on the stock is moving up 7 percent to 44 today, compared to a 52-week high and low of 67.5 (8/10) and 18 (12/20).

Bearish Flow

AIG loses 21 cents to $23.70 and a December 24 straddle is sold on the stock today at $3.44, 5000X. The position, which isn’t really bullish or bearish, looks opening and possibly a bet that shares will hold around $24 (~1.3%) through the Dec expiration (39 days). Shares lost 2.9 percent Friday after earnings showed a much wider-than-expected loss for the quarter. AIG has been rangebound for many months, however, and trades at the same levels today as it did in early-August. Meanwhile, implied volatility in AIG options, which hit 52-week highs of 77 on Oct 3, is up 2.5 percent to 54.5 today.

Implied volatility Mover

Options volume is picking up in Holly Frontier Corp (HFC) ahead of earnings. Shares of the Dallas, TX oil and gas refiner are down 51 cents to $32.88 and the top trades include lots of Dec 29.5 puts traded on the bid. 1118 traded at $1.20 when the market was $1.20 to $1.30. Another 1,000 traded at $1.10 when the market was $1.10 to $1.25. Volume is now 2,504 against 1,631 in open interest. On the call side of the options chain, Nov 35s are the most actives in HFC and flow includes a 1,000-lot at 90 cents when the market was 75 to 90 cents. Another 1000 traded at 85 cents when the market was 75 to 85 cents. 2,182 traded against 1,682 in open interest. Nov 34 calls are also seeing interest and have traded 1,028 contracts. Meanwhile, implied volatility in the options on the stock is moving up 9.5 percent to 68, and the overall flow seems bullish ahead of the earnings report — which is due out tomorrow morning.

Source: Monday Options Recap