VIX Rises Quickly as Market Tanks

Your daily option trading wrap up. Market Sentiment Stocks are broadly lower on
concerns about the impact to the economy and earnings from rapidly rising oil
prices. Federal Reserve Chairman Ben Bernanke was in the spotlight early Tuesday
after the Fed head warned that a period of high oil prices could thwart the
economic recovery. Just as Ben was busy playing Mr. Obvious, crude oil started
climbing on news Iran was clamping down on protests and amid fears about
escalating tensions in Saudi Arabia. Crude oil is up $2.61 to $99.58 a barrel.
Meanwhile, the day's economic news included a better-than-expected reading on
manufacturing after ISM increased to 61.4 in February, from 60.8 and ahead of
economist forecasts of 60.5. Yet, the domestic economic news continues to take a
backseat to worries about events overseas along with the spike in oil prices.
With thirty minutes left to trade, the Dow Jones Industrial Average is down 144
points. The tech-heavy NASDAQ lost 42. Trading in the options market is busy,
with 8.6 million calls and 7.2 million puts traded so far. Bullish Flow Two
large blocks of calls trade in Alcoa (NYSE: AA ) today, which is down 45 cents
to $16.40 at midday and the biggest loser among 23 Dow stocks under water
midday. The first was 19,000 AA Jan 15 Calls apparently bought at $3.05 and tied
to 1.27 million shares at $16.60. The second was a block of 19,000 AA October 15
Calls bought at $2.73 and tied to 1.31 million shares at $16.57. Looks like the
same trade twice, only different expiration months. Sonus Networks (NASDAQ: SONS
) rallied in after hours yesterday and is up 82 cents to $3.85 Tuesday morning
after the company reported a quarterly profit of 4 cents per share, which beat
Street estimates by a nickel. The company, which makes hardware that allows ISPs
and cable operators to provide voice and communication services to customers,
also raised guidance for the year. Shares are up and 3,376 SONS Mar 3.5 Calls
traded so far. The top two trades are 200-contract lots at the 35-cent asking
price this morning. The market is now 35 to 45 cents. Open interest is 5,976,
the second largest position in the name, and so some of the action might be
closing trades Bearish Flow Lorillard (NYSE: LO ) is trading up 3.2% to $79.24
after the FDA said that menthol doesn't raise smoker risk. In options action,
activity is being seen in LO Mar 70 – 75 Put Spreads and LO April 55 – 70
Put Spreads , traded on the International Securities Exchange. The March spread
traded 4080 times at 80 cents and the April spread at $2.25, 2030 times, and
$2.25, 1250 times. Looks like a possible roll of a bearish spread, or hedge,
from March to April. 24,000 puts and 4000 calls now traded in LO. Implied
volatility is down 5% to 43. Implied Volatility Mover CBOE Volatility Index
(CBOE: VIX ) has added 2 points to 20.35, but remains 12.4% below the highs of
23.22 seen last Wednesday. The S&P 500 Index Options (CBOE: SPX ) is down 17.22
to 1310. The decline so far has been orderly and theres no sign of panic in the
SPX pits. 409,000 puts and 190,000 calls traded on the S&P 500, which is about
typical volume. Volume across all index products is 423,000 calls/561,000 puts,
or 93% normal volume. Therefore, sentiment seems cautious and has a wait-and-see
feel to it. It is not yet consistent with extreme negativity, fear or panic.
Option Flow Bearish activity detected in US Airways Group (NYSE: LCC ), with
12,296 puts trading, or three times its recent average daily put volume. Bullish
flow detected in Star Scientific (NASDAQ: CIGX ), with 5418 calls trading, or
four times its recent average daily call volume. Bearish activity detected in
DIRECTV (NASDAQ: DTV ), with 10,909 puts trading, or three times its recent
average daily put volume. Increasing volume is also being seen in Goldcorp
(NYSE: GG ), Weatherford (NYSE: WFT ), and the Powershares US Dollar Index Fund
(NYSE: UUP ).