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Sentiment

Stock market averages are deep under water following a round of disappointing economic data Friday. The Labor Department reported this morning that the U.S. economy added 69,000 jobs last month. Economists were expecting 150,000. The unemployment rate ticked up to 8.2%, .1% more than expected. Separate reports showed Construction Spending up .3% in April and .2% less than expected. Meanwhile, Chicago PMI fell to 53.5 in May. Economists were expecting the gauge of manufacturing activity to print at 54. Steep losses across European markets, including a 3.4% slide in Germany’s DAX, added to the worries. The Dow Jones Industrial Average was down 266 points heading into the final hour. The Nasdaq was off 73 points. CBOE Volatility Index (.VIX) gained 2.31 to 26.37 amid defensive trading in the options market. 8.1 million calls and 9.3 million puts traded so far.

Bullish Flow

Yahoo (YHOO) loses 24 cents to $15 and one strategist sells 8,400 Oct 14 calls on the stock at $1.91 and 8,400 October 15 calls at $1.35 to buy 16,800 October 12 puts for 49 cents. This bearish risk-reversal is using calls with two different strikes (average 14.5 strike and $1.63 per contract in premium) to buy downside puts and looks is part of a collar, tied to 1.68 million shares for $14.97. It’s opening and similar to a trade initiated in Yahoo’s Jun 13 puts and 15 calls Wednesday (see 5/30 color). In both spreads, the breakeven is equal to the strike price of the calls minus the net credit received for the options combo. The potential profit is equal to the strike of the calls (if assigned) minus the breakeven. A collar using in-the-money calls is typically a relatively high probability, low profit trade, similar to an in-the-money covered call - with downside puts serving to hedge the stock position.

Boeing (BA) is off $2.15 to $67.47 and one of 30 Dow losers, as not one of the components of the industrial average has ticked into positive territory today. One player in the options market seems to be taking a longer-term view of the situation. A Jan14 67.5 – 90 call spread trades on the stock for $7.35, 2000X on PHLX. It appears to be an opening buyer.

Bearish Flow

PowerShares QQQ (QQQ) is down $1.53 to $60.63 on a rough day on the Nasdaq Stock Market and recent options trades on the ETF include a July 51 – 55 – 59 put butterfly for 50 cents, 20,000X on CBOE. Looks like an opening play targeting a move toward $55 through the July expiration, or another 9.3% loss for the Nasdaq 100 over the nextseven weeks.

Implied Volatility Mover

Vimpel Comm (VIP) loses 9 cents to $7.28 and options volume on the European wireless giant is 30X the daily average, being led by a sweep of 5,000 Sep 8 calls for 55 cents on CBOE when the market was 35 to 55 cents. Looks like an opening buyer and tied to 190K shares at $7.20. It’s possibly bottom-fishing in the name after the 40% loss suffered since February. 30-day ATM vols in VIP hit 52-week highs today, but have since eased and are down 3% to 52.

Unusual Volume Movers

Bullish flow detected in Vringo (VRNG), with 5086 calls trading, or 8x the recent average daily call volume in the name.

Bullish flow detected in Forest Oil (FST), with 3272 calls trading, or 4x the recent average daily call volume in the name.

Bearish activity detected in Range Resources (RRC), with 5414 puts trading, or 3x the recent average daily put volume in the name.

High options volume is being seen in US Oil Fund (USO), SPDR Industrials (XLI) and SPDR Gold Trust (GLD).

Source: Friday Options Recap