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Market Sentiment

Stocks are broadly lower Tuesday afternoon. The table was set for early weakness on Wall Street after overseas markets slipped on concerns about escalating civil unrest in Libya, the world’s 18th largest oil producer. Crude oil jumped more than $5 to top $95 a barrel and equity markets suffered losses across Europe and Asia. The domestic news included a profit report from Wal-Mart (NYSE: WMT). The world’s largest retailer posted a quarterly profit that beat analyst estimates, but shares slid after the revenue number fell short of expectations. On the bright side, the Conference Board’s Consumer Confidence Index rose to 70.4 in February, from 64.8 the month before and better than the 67.0 that economists had expected. At the end of the day, the data did little and the focus is on spreading civil unrest as well as rallying crude oil prices. The Dow Jones Industrial Average is down 181 points. The tech-heavy NASDAQ lost 70. With less than an hour remaining to trade, the CBOE Volatility Index (VIX) is up 4.33 to 20.76. Options trading is very active, with 9.9 million calls and 9.4 million puts traded so far.

Bullish Flow

Delta Airlines (NYSE: DAL) lost 85 cents to $10.65 amid weakness in the airlines on worries about rising fuel costs after crude oil moved more than $5 higher to $95 a barrel. Options order flow in Delta early Tuesday seems somewhat bullish, however, after 24,000 calls and 6,275 puts traded in the name. The top trade is a DAL Mar 11 – 12 Call Spread, where the investor bought both contracts for a total premium of 63 cents, 1,500 times. DAL Sep 12 Calls are the most actives with 8,542 traded. April 11 and June 13 calls are seeing active trading as well. Meanwhile, implied volatility jumped 23% to 48.5.

Bearish Flow

Ford (NYSE: F) gapped lower at the open and is trading down 29 cents to $15.48. Early options action includes 23,700 F Mar 15 Puts. The top trade is 1,643 contracts at 33 cents when the market was 30 to 33 cents. Looks like put buyers are taking positions and implied volatility is up 13.5% to 34. F March 16 Calls are seeing interest as well with 16,845 traded (56% on the Ask). The automaker announced today that it will release its February auto and truck sales numbers one week from today, on March 1 at Noon EST.

Implied Volatility Mover

CBOE Volatility Index (VIX) is up 4.38 to 20.81, near session highs and its best levels since early-December, as the S&P 500 Index Options (SPX) loses 24.17 to 1,318.74 and sits not far from its lowest levels of the day (1,317.55). Today’s total index put volume is approaching 500,000 contracts, which is about 1.4 times that expected for midday. 270,000 are SPX puts. Another 150,000 VIX puts changed hands. Overall, the sentiment is clearly more cautious than seen in recent weeks, but certainly not consistent with panic levels or extreme fear thus far.

Order Flow

Bullish flow detected in Avis Budget Group (NASDAQ: CAR), with 4011 calls trading, or four times its recent average daily call volume.

Bearish activity detected in Consumer Discretionary Select SPDR (NYSE: XLY), with 40,791 puts trading, or seven times its recent average daily put volume.

Bullish flow detected in Goodrich (NYSE: GR), with 6792 calls trading, or 24 times its recent average daily call volume.

Increasing volume is also being seen in Chesapeake Energy (NYSE: CHK), Wal-Mart, and US Oil Fund (NYSE: USO).

Frederic Ruffy is 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.