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Sentiment

Stock market averages opened positive, but have since fallen into the red. Alcoa (NYSE:AA) is off 3.4% and the biggest loser in the Dow Jones Industrial Average on an earnings disappointment. Applied Materials (NASDAQ:AMAT) is weighing on the tech sector after slashing its outlook. However, trading has been orderly and stability across eurozone equity markets is possibly keeping a floor under the US equity market through midday. Germany’s DAX helped pace the modest advance after gaining .9%. In the commodities market, crude oil has given back 75 cents to $85.24 and gold lost $11 to $1578 an ounce. With on major economic news to guide trading, the benchmark ten-year Treasury is drifting 1 tick lower in lifeless action. Meanwhile, the Dow Jones Industrial Average is off 25 points and the tech-heavy Nasdaq lost 16.3 points. Overall options activity is up from Monday’s anemic levels, but remains very light. With two hours left to trade, total volume across all the exchanges is 4.2 million calls and 3.8 million puts.

Bullish Flow

Kraft Foods (KFT) is up 47 cents to $39.50 in active trading of 5.9 million shares and the best percentage gainer in the Dow Jones Industrial Average early Tuesday. 16,000 calls and 2,350 puts traded on the food producer, which is 2.5X the daily average. The top trade is 10,000 July 40 calls for $1.31 on CBOE. While it traded on the bid, a source on the floor says the initiator bought. It's possibly closing. 10,640 now traded against 10,762 in open interest. No news on KFT today. Shares have performed well lately, up 5.6% since 6/27 and probing the 52-week highs of almost $40 per share set in early-May. Today's call buyer is possibly anticipating a move beyond $40 by year-end. Earnings come into play early-August.

Bearish Flow

Questcor Therapeutics (QCOR) spikes lower on increasing volume of 1.8 million shares and is down $3.05 to $54.59 (falling fast) on a negative report from Citron Research - saying it will be a single digit stock in 18 months. Shares are volatile and options volume is picking up, with 5,600 puts and 2,290 calls traded in the name so far. July 50 and 55 puts are the most actives and 30-day ATM vols moved up 9.5% to 56.5.

Implied Volatility Mover

Mead Johnson Nutrition (NYSE:MJN) is under pressure, falling $5.32 to $73.38, on increasing volume of 4.6 million shares on reports of an additive found in baby formula in China. The report was apparently released on a Chinese web site called caijing (unconfirmed). Shares are under pressure and options volume is 5X the daily average. 7,600 puts and 1,480 calls so far. July 70 and 75 puts are the most actives and 30-day ATM implied volatility in MJN options is moving up 29.5 percent to 40.5.

Unusual Volume Movers

(MJN) - Bearish activity detected in Mead Johnson Nutrition Company with 5,720 puts trading, or 8x the recent average daily put volume in the name. Shares near $73.91 (-4.79) with ATMIV lifting by 9.18 points and 59% of today's put premium trading offer side.

(NASDAQ:LSI) - Bullish flow detected in LSI Corporation with 10734 calls trading, or 12x the recent average daily call volume in the name. Shares near $6.09 (-0.11) with ATMIV lifting by 1.81 points and 77% of today's call premium trading offer side.

(NYSE:MWW) - Bullish flow detected in Monster Worldwide Inc with 5099 calls trading, or 4x the recent average daily call volume in the name. Shares near $8.47 (0.37) with ATMIV lifting by 3.60 points and 57% of today's call premium trading offer side.

High options volume is being seen in Alcoa (AA), Caterpillar (NYSE:CAT) and McMoran (NYSE:MMR).

Source: Tuesday Options Recap