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Sentiment

Stock market averages stumbled on concerns about the global economic backdrop, but pared morning losses and are only modestly lower late-Monday. A downward revision to China’s GDP estimates along with weaker-than-expected PMI readings in Spain and Italy set the table for morning weakness on Wall Street. Some of the metals, mining and material names, like US Steel, Patriot Coal, and Freeport McMoran, are seeing noteworthy weakness. Alcoa (NYSE:AA) lost 3 percent and was the biggest loser in the Dow. Yet, the domestic economic news, which included better than expected readings from the ISM Services Index and January Factory Orders, wasn’t as bad as feared. Crude oil is steady at $106.75 per barrel and gold has cut its days loss to only $2.50 an ounce. Meanwhile, 14 Dow stocks are higher on the session and the industrial average is down 12 points, but up 83 points off session lows. The tech-heavy NASDAQ lost 21 points. CBOE Volatility Index (.VIX) is up .78 to 18.07 amid average volume in the options market. 6.4 million calls and 6.2 million puts traded across the exchanges so far.

Bullish Flow

Pandora (NYSE:P) sees relative strength and high call volume today after Stifel analysts upgraded the stock to Buy, with a $18 price target. The bullish commentary comes one day before the company is due to report earnings (at the close on 3/6). Shares are up $1.16 to $15.06 on high volume of 3.5 million shares, which is almost 7X the typical volume through the first hour. Meanwhile, 10,000 calls and 1,190 puts traded on Pandora. Investors are tuning in to the Mar 16 calls ahead of the report. 6,480 traded (52 percent Ask) against 917 in open interest. The action has been in smaller lots. The top trade is an 876-lot on the 40-cent bid. Meanwhile, implied volatility in the options on the stock is up 17.5 percent to 84.5. Shares slid 11.3 percent ton 11/23 after earnings were last reported and the Mar 15 straddle on Pandora is now at $2.20 and 14.6 percent of the spot.

Bearish Flow

A few big ETF options trades electronically in the early minutes of trading this morning on ISE are opening buyers, according to data from the exchange. SPDR Industrial Fund (NYSEARCA:XLI) is down 13 cents to $37.01 and 21000 Jun 35 puts traded for $1.05 per contract. SPDR Basic Materials (NYSEARCA:XLB) slips 39 cents to $36.90 and 17,630 Jun 35 puts were bought on the ETF for $1.23 each. SPDR 500 (NYSEARCA:SPY) gives up 36 cents to $136.95 and a Jan 110 – 137 put spread is bought to open on the SPYders for $7.58, 25000X. Early options flow in all ETFs on the nine exchanges reflects the cautious underlying sentiment, with 550,000 puts and 291,000 calls traded across all products in the first thirty minutes.

Implied volatility Mover

Patriot Coal (PCX) is down 8.7 percent to $6.29 on heavy turnover of 5.2 million shares. Options action is picking up in the coal producer as well. 6,160 calls and 2,000 puts traded on the stock so far. The activity has been in smaller sizes. The top trade is a 150-lot of Mar 7 calls for 9 cents when the market was 8 to 9 cents. April 8, April 6, and Mar 8 calls are the most actives and implied volatility in options on the stock is up 14 percent to 65.5. Shares have plummeted 75.6 percent since March of last year and falling to new 52-week lows today. Some players might see today as possible capitulation in the name, as there are no news driving the sharp decline and high volume in PCX. But rather than sticking their necks out too far, they’re buying upside calls rather than PCX shares Monday.

Source: Monday Options Recap