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Sentiment

Stock market averages are holding gains in a day of relatively slow trading Tuesday. Steady action across Asian and European equity markets helped set the table for the advance this morning heading into the only economic stat of the day. ISM Services Index edged to 53.7 in May, from 53.5 in April and better than the 53.1 that was expected. The market showed little reaction to the data and trading was lifeless heading into midday. Bonds gave up some of their flight-to-safety bid, but gold edged up $4.5 to $1,618.50 an ounce and crude ticked 20 cents higher to $84.18 per barrel. Meanwhile, the Dow Jones Industrial Average seesawed in an out of positive territory, but is holding a 26-point gain in the final hour. The NASDAQ added 15.5 points. CBOE Volatility Index (.VIX) is off 1.42 to 24.70 amid very light volumes in the options market, 5.7 million calls and 5.4 million puts traded across the exchanges so far.

Bullish Flow

Novagold (NYSEMKT:NG) adds 18 cents to $6.55, as gold ticks $7 higher to $1621 an ounce Tuesday. Options volume on the Vancouver-based miner is running 3X the daily average, with 7,340 calls and 145 puts traded on the stock so far. Jul 6 calls, which are now 55 cents in-the-money, are the most actives. 4,910 traded (98 percent Ask). July 7, Jun 7, and Aug 8 calls on NG are also seeing some interest and the 30-day at-the-money vols rose 1.5 percent to 70. Bullish trading in the stock comes amid a period of relative strength. Shares are up 24.4 percent from the 52-week lows seen less than a month ago. No recent headlines on the ticker.

The top options trade today is a 40,000-lot of July 137 calls on the SPDR 500 Trust (NYSEARCA:SPY) for 52 cents per contract on AMEX. An investor sold 10,000 SPY July 121 puts at $2.08 to buy the hefty block, creating a 1X4 bullish risk-reversal at even money. The position might close, but is more likely a bullish short-term play that takes advantage of volatility skew. IV in the 121 puts is 21.5 percent compared to 17 percent for the upside calls. The risk is to a move lower, to less than $121, through the July expiration -- which represents a 5.8 percent decline in the S&P 500 over the next 45 days.

Bearish Flow

SPDR Retail Trust (NYSEARCA:XRT) adds 48 cents to $57.15 and 15,000 Jun 51 - 57 put spreads are sold on the ETF at $1.15 to buy 15,000 July 50 - 56 puts for $1.46. The hefty four-way traded on ISE where ISEE is consistent with rolling - or selling to close a Jun put spread and buying to open a new position in July, but down one strike. XRT is off 8.4 percent since May 2 and the roll seems to reflect expectations for further weakness, heading into monthly Retail Sales numbers next Wednesday.

Implied volatility Mover

VIX Volumes are very light and levels of implied volatility levels are coming down noticeably across much of the market Tuesday. With thirty minutes remaining to trade, 5.8 million calls and 5.5 million puts traded, which is about 75 percent the average volume seen during the past month. CBOE Volatility Index (.VIX), which hit a multi-month high of 27.73 Monday morning, is down 1.41 to 24.71 amid very quiet trading in the VIX pit. 147,000 calls and 89,000 puts so far. While it's been a slow news day, the decline in implied volatility is notable in a number of large cap names as well. For example, 30-day ATM implied vols in Wells Fargo (NYSE:WFC) options fell 11 percent to 336. GS vols are down 10.8 percent to 39.3, AXP falling 9.6 percent to 28.5, and MA off 8.5 percent to 32.5.