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Sentiment

Stock market averages fell at the open, but rebounded into midday and are holding modest gains late-Monday. The underlying tone of trading was cautious early after Moody’s warned that Greece isn’t out of the woods and a default is still possible. Yet, the morning slide on Wall Street never gathered any real momentum and a better than expected reading on January Pending Home Sales (2 percent vs. 1 percent) along with news that Germany approved the second bailout for Greece seemed to keep a floor under stock prices through mid-morning. From there, market action was mixed and choppy, but with a positive bias. The Dow Jones Industrial Average is up 27 points and 127 points off session lows. The NASDAQ gained 7.7 points. CBOE Volatility Index (.VIX) jumped to 19.25 early and was recently up .65 to 17.96 amid light volume in the options market. 6.6 million calls and 5.1 million puts traded across the exchanges so far.

Bullish Flow

Texas Instruments (TXN) loses 17 cents to $33.15 and an Apr 32 – 33 call spread trades on the chip maker for 60 cents, 7000X on ISE. Data indicate a customer bought the spread, to open, and is probably looking for the stock to hold above $33 through the April expiration, which is in 53 days. If the stock holds above $33, the spread widens to $1 (33-32) and the profit is 40 cents (excluding commissions). The stock has been trading in a narrow range over the past few weeks, but is up 13.9 percent year-to-date. Earnings were reported on 1/23 and probably won’t come into play again until after the Apr expiration. However, the company presents at a Morgan Stanley conference tomorrow and will offer a mid-quarter update on Mar 8.

Bearish Flow

A couple of homebuilding names are the subject of put buying today. Ryland (RYL) has added 3 cents to $18.14 and is up more than 70 percent since September. A shareholder might be looking to hedge recent gains, as 11,271 April 18 puts were bought on the stock for $1.15 outright, to open. 12,900 now traded. Pulte Group (PHM), which is up a dime to $8.59 today and has more than doubled since September, is seeing interest in Apr 8 puts. The top trade is 24,134 contracts for 41 cents apiece. XHB, the homebuilder ETF, was also the subject of downside April put buying today. The bearish trading in the group comes despite better-than-expected Pending Home Sales numbers today — up 2 percent in Jan vs. 1 percent consensus.

Implied volatility Movers

Vivus Pharmaceuticals (VVUS), which surged 77.5 percent Thursday on positive FDA news related to the company’s obesity drug, is up another $2.02 to $24.15 in active trading of 18 million shares, which is 5X the typical volume. Trading in the options is heavy as well. 46,000 calls and 12,000 puts so far. The top trade is a Jun 20 – 35 call spread sold for $5.65, 3844X, and possibly rolls a position up in strkes after the 100 percent surge in the share price during the past week. Mar 21, Mar 24, Mar 25 and April 30 calls on VVUS are actively traded as well and levels of implied volatility are up 14.5 percent to 108.5. Vivus is expected to report earnings soon. Some sources have today (afternoon) as a release date, but that has not been confirmed and seems unlikely because there’s nothing yet posted on the company’s event calendar. No answer from the company’s investor relations dept.

Dendreon (DNDN) Mar 15 calls are among the most actives early-Monday after shares fell $2.73 to $12.13 on disappointing earnings results. 5,650 Mar 15 calls traded on the stock and probably seeing some liquidating trades. The contract is falling 22.7 percent out-of-the-money. Open interest is 12.231, which is the largest position in the Seattle, WA biotech, and implied volatility in the options on the stock is down 19 percent to 82.5. Weekly 13 puts and 14 calls on DNDN are seeing early interest as well. Shares had performed well in 2012 and, despite today’s slide, are up more than 60 percent year-to-date after results released in early-January showed strong sales of the company’s Provenge prostate cancer drug.

Source: Monday Options Recap