The article is by Frederic Ruffy, senior options strategist with Whatstrading.com.

Bullish flow detected in DepoMed (NASDAQ: DEPO), with 4712 calls trading, or four times its recent average daily call volume.

Bearish activity detected in Universal Health Services (NYSE: UHS), with 2367 puts trading, or 39-times its recent average daily put volume.

Bullish flow detected in Radian Group (NYSE: RDN), with 13,733 calls trading, or four times its recent average daily call volume.

Increasing volume is also being seen in IBM (NYSE: IBM), CREE (NASDAQ: CREE), and Mosaic (NYSE: MOS).

Sentiment

With one hour to go before the close, stocks are broadly lower following mixed earnings news Wednesday. IBM is up 3.2% after posting better-than-expected earnings and revenues. The big gain in Big Blue helps explain why the Dow Jones Industrial Average is down just 20 points heading into the final hour. Beyond that, and a post-earnings rally in Apple (NASDAQ: AAPL), the overall market action is overwhelmingly negative. For the S&P 500 Index, 438 of its stocks are trading lower and only 59 moving higher. Disappointing earnings from Goldman Sachs (NYSE: GS) and Wells Fargo (NYSE: WFC) are weighing on the financials. CREE is also taking a post-earnings hit. Meanwhile, on the economic front, data released early Wednesday showed Housing Starts falling to an annual rate of 529,000 in December, from 553,000 the month before and below economist estimates of 550,000. The upcoming options expiration might be exacerbating market volatility a bit as well. January 2011 contracts expire on Saturday, January 22. The S&P 500 Index is down 13.5 points and the tech-heavy NASDAQ lost 41.5 Wednesday. The CBOE Volatility Index (.VIX) gained 1.39 to 17.26. Trading in the options market is active, with 9.1 million calls and 7.5 million puts traded so far.

Bullish Flow

Bank of America (NYSE: BAC) Jan 15 Call is today’s most actively traded equity options contract. BAC shares lost 42 cents to $14.58 and the top trade is 2,709 BAC Jan 15 Calls at its 12-cent ask price. Volume is now approaching 60,000, compared with 376,000 in open interest. Some investors probably have their sights set on earnings. BofA is due to release results on options-expiration Friday, before the bell.

Bearish Flow

S&P 500 Index (.SPX) options are actively traded ahead of the expiration with 700,000 puts and 300,000 calls traded through early-afternoon. The index is off 9.48 to 1,285.54 and .SPX Jan 1250 Puts and Calls are the most active, with some investors likely closing trades ahead of the expiration and possibly rolling straddles to the .SPX March 1250 Puts and Calls, which are the third and fourth most active SPX options. Feb out-of-the-money (OTM) puts are seeing interest, as some institutional players are buying some short-term portfolio protection amid an up tick in volatility today. The CBOE Volatility Index (.VIX) touched an intraday high of 16.99 and was recently up .88 to 16.75.

Implied Volatility Mover

Cubist Pharmaceuticals (NASDAQ: CBST) loses 94 cents to $21.28 and the CBST Aug 24 Calls are seeing interest ahead of earnings, tomorrow (after market close). The action includes morning buyers, 1000 total, at $1.85 on the International Stock Exchange. Volume is approaching 2,000 contracts vs. 16 in existing open interest. Implied Volatility (IV) in CBST is up 8 percent to 40.

This article is by Frederic Ruffy, the Senior Options Strategist at Whatstrading.com, a site dedicated to helping traders make sense of the complex and fragmented nature of listed options trading.