Market Sentiment
The major averages are trying to bounce back from steep losses suffered Friday and were helped higher in morning trading by better-than-expected economic news. The ISM Manufacturing Index, released at 10:00 ET, showed a surprise uptick to 55.7 in October--which was up from 52.6 in September and better than the 53 economists had predicted. Separate data on construction spending and pending home sales, also released at 10:00 Monday, improved more than economists had expected as well.
Yet, after the initial positive reaction to the data, the major averages gave back the gains, as the bearish underlying tone continues. The Dow Jones Industrial Average, which hit a high of 9,859, was underwater by midday and up 38 points to 9,751 heading into the final hour. The tech-heavy NASDAQ is down 3 points after Citi analysts whacked PALM and Research In Motion (RIMM) with Sell ratings.
Meanwhile, the CBOE Volatility Index (.VIX) has been all over the map -- falling to 28.07 early before bouncing back to multi-month highs of 31.84. VIX is down .25 to 30.44. Trading in the options market is active, with 7.1 million puts and 7.1 million calls changing hands so far (a ratio of 1.00, compared to a 22-day average of .28).
Bullish Flow
Big print in Etrade (ETFC). Shares of the online broker are off a dime to $1.36 and somebody sold 95K Jan 1 puts for an average of 5.5 cents on AMEX. 95.8K now traded vs. 146.3K of open interest. So, the put sale might close an existing position. The trade coincided with a Reuters report that Etrade withdrew application to participate in CPP Under Emergency Economic Stabilization Act. The broker cites funding from capital raising activities and less debt.
Bearish Flow
Bearish activity detected in Kohl’s (KSS), with 5996 puts trading, or 2x the recent avg daily put volume. Shares are up 30 cents to $57.52 and traders are shopping for Nov 55 puts. 5,200 changed hands and ISEE data (at 2793 contracts or 85% of the puts traded on the ISE) point to active opening put buying Monday morning. Implied volatility (average) is edging up to 41.1, from about 40 late Friday. The action comes ahead of same-store sales numbers Thursday.
Implied Volatility Movers
PALM implied volatility jumped after Citi cut their rating on the stock to Sell from Neutral. Shares are down 48 cents to $11.13 and implied volatility in PALM options jumped to 90%, from about 84% late Friday.
Implied volatility is also higher in Wells Fargo (WFC), Research In Motion (RIMM), and LDK Solar (LDK). Meanwhile, implied volatility is lower in Ford Motor (F), Human Genome Sciences (HGSI), and Vertex Pharmaceuticals (VRTX).
Unusual Volume Movers
Real-Time at WhatsTrading.com
RIMM is seeing 2X average trading volume, with 293,000 contracts traded and call volume representing 65% of Monday’s trading activity.
Human Genome Sciences (HGSI) is seeing 5X normal trading volume. 275,000 contracts have traded, with calls representing 58% of today's volume.
Unusual volume (two times or more than normal average volume) is also being seen in Ford Motor (F), Motorola (MOT), and CF Industries (CF).
Regards,
Fred Ruffy
Senior Options Strategist, WhatsTrading.com
TradeKing All-Star Commentator
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While implied volatility represents the consensus of the marketplace as to the future level of stock price volatility or probability of reaching a specific price point, there’s no guarantee that this forecast will be correct.
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