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Earnings from chipmaker Nvidia (NVDA) along with better-than-expected Consumer Confidence numbers seemed to help offset news of JP Morgan’s (JPM) big trading loss. Shares of the bank are down 8.8 percent and near session lows after disclosing the $2 billion mishap late-Thursday. Shares of the major banks are under water on the news. However, Nvidia is up 8 percent and helping the tech sector on earnings. Bonds are holding gains after the latest PPI report showed wholesale inflation falling .2 percent last month. Gold fell $13.5 to $1852 and oil is off 84 cents to $96.24 per barrel. However, the Dow Jones Industrial Average moved off morning lows early after the Univ of Michigan said it’s sentiment index improved to a better-than-expected 77.8 in May. Since that time, market action has been choppy and, with less than two hours to trade, the Dow is up 5 points. The Nasdaq has also erased morning losses and is up 16 points. Still, CBOE Volatility Index (.VIX) is up .46 to 19.49 amid cautious trading in the options market. 5.5 million calls and 6.1 million puts traded so far.

Bullish

Avon Products (AVP) is off 65 cents to $20.24 and moving off session lows of $19.83 in active trading of 16.8 million shares. Options on the stock are busy as well, with 34,000 calls and 20,000 puts changing hands in AVP so far. The top trade is a 4,900-lot of May 21 calls for $1 on ISE and was bought to open, according to ISEE. Another noteworthy trade is a 3,000-lot of May 20 calls at the $1.30 asking price. A three-way spread traded in the October options, after 1950 Oct 17 puts were apparently sold on AVP at 95 cents to buy the Oct 22 – 25 spread for $1. The three-way, for a five-cent debit, seems to reflect expectations for a move to the mid-20s by Fall. Coty Inc raised its hostile bid for Avon to $24.75 Wednesday and set a deadline for the company to agree. The action in the underlying seems to reflect diminishing expectations for a deal, but the options order flow paints another picture. 30-day implied volatility in AVP, which is up 5.5 percent to 83 and new 52-week highs, also seems to reflect expectations for additional news on the buyout front.

Bearish Flow

JP Morgan (JPM) is off 7.8 percent to $37.56 in morning trading on heavy volume of 94 million shares and the Dow’s biggest loser after the bank late-Thursday reported a $2 billion trading loss. Options on JP Morgan are seeing heavy trading as well. 112,000 calls and 191,000 puts in the first hour, which is 3.5X the daily average. The top trade printed in the opening minutes after a 20,000-lot of Jun 35 puts was sold on JPM at 95 cents per contract. It was tied to stock and might close one leg of a spread from late-Jan when a JPM Jun 27 – 35 put spread was bought for $1.46, 20000X and tied to 500K shares at $37.39. 28,247 Jun 35 puts now traded in JPM. Jun 36, Jun 37 and May 36 puts are the next most actives and 30-day ATM implied vols moved up 17.5 to 33, as players in the options market react to the headline and the big move in the underlying stock Friday morning.

Implied Volatility Mover

Auxillium Pharmaceuticals (AUXL) is up 44 cents to $18.62 and a May – Jun 20 call spread is apparently bought on the stock for $1.30, 2324X. The activity probably rolls a bullish position after the Malvern, Penn. biotech released earnings this morning. 30-day ATM vols are moving up another 7.5 percent to 72 and the term structure shows the highest vols are in the July options. The higher vols today and the skew are probably related to phase III trial results of XIAFLEX, which are expected by the end of the second quarter.

Unusual Volume Movers

Bearish activity detected in Calpine (CPN), with 2234 puts trading, or 3x the recent avg daily put volume in the name.

Bullish flow detected in Staples (SPLS), with 10461 calls trading, or 5x the recent avg daily call volume in the name.

Bearish activity detected in Silvercorp Metals (SVM), with 2006 puts trading, or 5x the recent avg daily put volume in the name.

High options volume is being seen in JP Morgan (JPM), Citi (C), and Cisco (CSCO).

Source: Friday Options Recap