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Sentiment

Steep losses in bonds and the metals market are keeping traders on edge Wednesday. The underlying tone was positive early after the Dow Jones Industrial Average jumped 218 points Tuesday and the rally was followed by solid gains across Asia and Europe’s equity markets. The stress-tests of major banks, which weighed on a handful of names like Goldman and Citi Wednesday, helped send BofA higher for a 3.5 percent gain. The advance adds to the move yesterday, which was fueled by an afternoon announcement from JP Morgan involving a dividend increase and share buyback. Yet, many of the metals and mining names are under pressure following big losses for gold and silver. Bonds are also reeling and the iShares Long-Term Bond Fund (NYSEARCA:TLT) fell below is 200-day moving average in volatile action and is at multi-month lows. While the Dow Jones Industrial Average still holds a modest five-point gain on the day, the NASDAQ is down 3.5 points and market breadth is negative, with Big Board decliners leading advancers almost three-to-one. CBOE Volatility Index (.VIX) is rebounding 1 point to 15.80 heading into the Quadruple Witch expiration. Trading in the options market is busy, with an Apple (NASDAQ:AAPL) put or call representing about one of every five equity options trades today. 10 million calls and 8.4 million puts traded so far. 2 million contracts traded in Apple alone.

Bullish Flow

Amarin Corp (NASDAQ:AMRN) is rallying and implied volatility in the options on the biotech is up sharply amid heavy call activity on the stock today. AMRN was recently up $1 to $8.15 on volume of 4.1 million shares, which is almost 4X the expected. Meanwhile, 12,000 calls and 1,540 puts traded in AMRN options. The flow includes a multi-exchange sweep of 1,500 Mar 10 calls for 10 cents. Mar 8 calls are the most actives. 5,710 changed hands. Apr 8 and Apr 9 calls are busy as well and implied volatility in the options on the stock jumped 33 percent and is elevated at 107. Term structure shows the highest vols in the Sep options, which is probably related to an NDA for the company’s heart drug AMR101. However, today’s flow in March upside calls seems to reflect expectations for some news before weekend.

Microsoft (NASDAQ:MSFT) adds 13 cents to $32.80 and is one of 18 Dow stocks holding gains midday. Recent options trades on the stock include an Apr 27 – 32 put spread, sold at 45 cents, 18500X. It might be a closing trade or position adjustment after a 26.4 percent year-to-date rally in MSFT shares. Or, it might simply be a straight put spread write on the view MSFT will hold above $32 (~2.4%) through the April expiration (37 days). The stock is notching new 52-week highs today and trading at its best levels since Feb 2008.

Bearish Flow

Apollo Group (NASDAQ:APOL) loses 56 cents to $41.85 and April 40 puts on the for profit education company are seeing interest today ahead of a March 26 earnings release. The flow includes a multi-exchange sweep of 1040 contracts for $1.55 when the market was $1.49 to $1.55. Total volume in April 40 puts on APOL is now 3,140 (84 percent Ask) against 538 in open interest. Shares have already suffered steep losses of late and are down 18.5 percent since guiding estimates lower on 2/27. The stock tends to see significant moves around profit reports as well. The average daily post-earnings move during the past four quarters is 6 percent.

Implied volatility Mover

Trading is busy in the VIX pit today, as the index jumps .97 to 15.77 and rebounds from the multi-year low of only 13.99 seen intraday Tuesday morning. Although the S&P 500 is down less than 4 points today, market breadth is overwhelmingly negative. 356 decliners and 141 advancers in the S&P so far. Plunging long-term bonds and steep losses in the mining names after gold and silver prices plummeted are getting noticed as well. VIX is up and volume in the product is 400,000 calls and 175,000 puts. Recent trades include an Apr 18 – 20 put spread, bought for $1.50, 10000X and possibly a bet that VIX will settle below 18 at the April expiration. The top trade is a 33000 lot of May 30 calls at $1.92. Looks like it was part of a 2X3 ratio spread, as it coincided with 22,000 May 24 calls for $3.315 per contract. The spread might roll a position down in strikes (May 24s are opening) and seems to be a bet that volatility will increase in the weeks ahead. March 25 calls on VIX are the most actives in the index. 68,500 traded and maybe seeing some liquidating trades before the options expire in one week. The Quadruple Witch March expiration is now fast approaching and March options on VIX expire the following Wednesday.

Source: Wednesday Options Recap