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Sentiment

Stock market averages are off session lows, but still in the red late-Tuesday. Sharp losses across Eurozone equity markets, including a 2.8 percent slide in France's CAC 40 Index, set the table for weakness on Wall Street. A little over two years after the Flash Crash 2010, investors are still worried that Greece's fiscal problems could potentially derail efforts to stem the debt crisis and thereby roil financial markets. On May 6, 2010, the Dow opened sharply lower and then sank 600 points in just five minutes. Worries about Greece triggered the early weakness that was followed by the infamous Flash Crash. By way of comparison, today's decline is very orderly. The Dow Jones Industrial Average is down 113 points and 84 points off session lows. The NASDAQ gave up 20. Crude oil is down another 62 cents to $97.32 per barrel and gold has been volatile - now off $31.5 to $1,607.50 an ounce. CBOE Volatility Index (.VIX) added .50 to 19.44. Trading in the options market reflects the cautious underlying tone, with 7.7 million calls and 9.2 million puts traded so far (excluding the surge in ex-dividend related call activity).

Bullish Flow

Gold Fields (GFI) is off 32 cents to $12.51 and 13,010 Oct 13 calls traded on the gold miner. The top trade is a 946-lot at 83 cents on ISE. It was apparently a closing seller, according to ISEE. Beyond that, the flow has been in smaller lots and seems to include a mix of buying and selling, opening and closing activity (and hints at a possible newsletter mention). Some investors are possibly bottom-fishing after the 24.6 percent decline in shares since January. GFI set a 52-week low of $12.15 on 4/23.

St Jude Medical is seeing notable bullish call flow today, with buyers of upside July 40 calls as shares trade down a quarter to 37.61 after clawing back earlier losses. May 37.5 calls are the most active, with 2100 trading at an average price of 81 cents early in the day, and ISE data confirming the buyer was opening customer. More recent flow was a sweep buyer of 1000 July 40 calls for $1.05, marked opening FIRM. Nearly 4 calls have traded for each put in STJ today, well above the typical put/call of 3:2.

Bearish Flow

SPDR Retail Trust (XRT) is off $1 to $59.37 and noteworthy trades on the ETF today include a buyer of 55,000 XRT May 56 puts for an average of about 35 cents per contract on ISE. It's an opening customer buyer, according to ISEE, and is maybe tied to a block of 600K shares for $59.40 that traded about 40 minutes later. Separately, 4000 Jun 55 - 58 put spreads were bought on XRT for 91 cents per contract. More than 10000 now traded. Total share volume is a brisk 7 million. 89,000 puts and 3,600 calls now traded, which is more than 3X the daily average volume for the ETF. 30-day ATM vols are up 7.5 percent to 26 and the overall flow seems to reflect some anxiety about the short-term outlook for the retailers. May 56 puts on XRT are 5.7 percent OTM with a -.13 delta. The contract expires in 10 days.

Large quantities of May downside puts have traded on a number of sector ETFs electronically on ISE today and the hefty purchases are opening positions for customer accounts, according to ISEE. XRT has already been written up today. SPDR Industrials Fund (XLI) is down 28 cents to $35.92 and the flow is in the May 35 puts, where 56000 were bought-to-open on ISE. SPDR Basic Materials Fund (XLB) is down 40 cents to $35.31 and 40,000 May 34 puts were bought to open on ISE and another 20,600 traded on CBOE. SPDR Metals and Mining Fund (XME) is off 99 cents to $44.63 and a 45000-contract block of May 40 puts was bought for 25 cents on ISE to open. 83000 total! These downside May puts expire in 10 days and the flow seems to reflect concerns about additional short-term losses for the more economically-sensitive sectors of the market. A total of 4.7 million puts traded across all ETFs. The projected volume, of 5.6 million, is almost double the recent daily average. Fear is Back.

Implied volatility Mover

Blue Nile (NILE) implied volatility is moving to new 52-week highs, as shares fall to three-year lows, ahead of the Seattle, WA fine jeweler's earnings release. The company reports after the closing bell. NILE is down $1.90 to $27.16 on heavy turnover of 1 million shares ahead of the results. Typical volume is about 200K. Meanwhile, options volume is running 16X the daily average and 30-day ATM vols are up 23 percent to 95. Looks like some investors view the recent weakness and high vols as an opportunity to write May 22.5 and 25 puts on the stock, which are the most actives and the top trades in both contracts have been on the bid. That, however, is not for the faint of heart, because NILE has suffered average daily post-earnings losses averaging 13.4 percent over the past four quarters, including a 32.8 percent swoon on 11/9.

Source: Tuesday Options Recap