Market Uninspired to Make Any Move

Stock market averages are showing modest losses for a second day. Disappointing housing numbers weighed on early trading after data showed New Home Sales falling to an annual rate of only 250,000 in the month of February, which was down from 301,000 in January and well below expectations of 288,000.

Meanwhile, some of the attention is on crude oil, where prices are moving beyond $105 per barrel on unrest in Libya and on the heels of weekly crude oil inventory data.

BofA (BAC) is down 2.6 percent and the biggest loser in the Dow after the Federal Reserve rejected the bank's request to raise its dividend in the second half of the year.

The Dow Jones Industrial Average has been in a narrow 51-point range and is down 14 points at midday. The tech-heavy NASDAQ lost 6.4. The CBOE Volatility Index (.VIX) lost .37 to 19.84, but sentiment in the options market seems a bit defensive today, with 3.7 million calls and 3.6 million puts traded through 12:10pm ET.

Bullish Flow

General Mills (GIS) shares are down and options volume is up after the food company released its quarterly profit report. While earnings were in-line with Street estimates, revenues fell short of expectations. GIS is trading down 52 cents to $36.39 on the results. Meanwhile, more than 50,000 April 36 calls have traded in GIS today. One investor sold 20,000 contracts at 73 cents each. The same investors also bought the October 33 put – 37 call bullish risk-reversal, 20000X (buying 37 calls and selling 33 puts) and was probably rolling a bullish position in 20000 April 36 calls out to the October risk-reversal.

Western Refining (WNR) shares are rallying on takeover speculation. It's unsubstantiated market chatter, but it seem s to be having an effect on the stock price. WNR is up $1.18 to $17.15 midday Wednesday. In options action, 16,000 calls and 4,600 puts have traded in the oil refiner so far, which is 2.5X the average daily options volume. April 17 and 18 calls have traded 4735 and 4448X, respectively, and are the most actives. Short-term speculators are active in these at-the-money and out-of-the-money calls, probably hoping for some further news in the days ahead. April options expire in three and half weeks.

Bearish Flow

Puts on the PowerShares QQQ (QQQ), which underwent a symbol change from QQQQ, are seeing heavy trading. QQQ reverted back to its old three-letter ticker today. Shares have battled back from morning weakness and are now up 3 cents to $55.42. Meanwhile, options volume includes 70,000 call and 438,000 puts. Volume in the QQQ April 53 puts is approaching 200,000. Another 102,000 April 54 puts have changed hands. Meanwhile, implied volatility in the Qs, as measured by the QQV index, was up 1 point to 21.08 this morning. The increased put activity and higher implied volatility in the QQQ seems to reflect some underlying concern about the outlook for the NASDAQ 100. The QQQ is an exchange-traded fund that holds the same companies as the NASDAQ 100.

iShares Japan Fund (EWJ), which rallied 10.6 percent from Thursday through Monday, is trading down for a second day. Shares of the fund are down a dime to $10.54 today and the top options trade in EWJ is a block of 99,000 April $11 calls at 8 cents per contract. The market was 8 to 9 cents at the time and one investor might be liquidating a bullish position as shares slip Wednesday. The Japan fund was hit hard on March 15 and 16 on concerns about the fallout from the devastating earthquake and tsunami in northeastern Japan. Although shares rebounded in the days that followed, today's massive call sale might reflect the view that a move beyond $11 through the April expiration is becoming less likely.

Implied Volatility Movers

CREE is under pressure and implied volatility is up after the company lowered its revenue outlook. The company cites lower demand for light emitting diode [LED] products for the disappointing news. Shares are down $5.65 to $43.35 and touched new 52-week lows Wednesday. Options action is brisk as well. 26,000 calls and 30,000 puts traded so far. As a result, implied volatility in CREE options is up 8 percent to 47.5.

Unusual Activity


CREE options volume is running 4X the (22-day) average, with 54,000 contracts traded and put volume accounting for 54 percent of the volume.

Best Buy (BBY) options volume is 2.5X the average daily, with 43,000 contracts traded and put volume representing for 65 percent of the activity.

Leap Wireless (LEAP) options volume is running 8X the average daily, with 31,000 contracts traded and call volume accounting for 71 percent of the activity.

Increasing options activity is also being seen in DR Horton (DHI), Jabil Circuits (JBL), and International Coal (ICO).

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