Today’s tickers: BSX, WPI, SGP, MRK, AZN, AMGN, CELG, BBH, BAC, KRE, XLF

BSX- Implied volatility in the maker of “less invasive” medical instruments, Boston Scientific Corp, is elevated at 45.4% (compared to 33.8% historic) ahead of its after-the-bell earnings report as shares trade flat at $13.84. An increase in options trading volume to nearly 8 times the normal level shows traders eschewing the front month, however, and entering 10,000 lot positions in November 15 calls for 90 cents, and again at what looks like the January 10/17.50 collar or strangle. If the January volume was a strangle, it would have been a short position favoring rangebound activity between the strike prices with a 75-cent credit hanging in the balance. A collar at these strikes given the order flow would also have been short, with a trader selling the 10-strike puts and buying the 17.50-strike calls to protect a short position in the stock. Boston Scientific shares are up 19.6% for the year to date.

WPI- Last week’s much-ballyhooed buyout of Barr Pharmaceuticals by Israeli sector peer Teva, and this morning’s offer by Roche to acquire the remaining stake in Genentech has option traders looking for the next possible takeout target. To that end we’re look at options activity in Watson Pharmaceuticals, which we should be careful to stipulate has no specific rumor tied to its stock, but where some option traders showed an unusual interest in out-of-the-money calls today. With shares down 2.5% to $29.13 we registered an increase in option trading volume to nearly 10 times the normal level, situated in November 35-strike calls, which were bought for 40 cents. Given that Watson shares have traded as low as $23.90 and as …

Today’s tickers: KRE, MSFT, BAC, MIR, OSTK, GILD, BRL, MAT

KRE- We spent much of the afternoon puzzling over a sizable 2-by-1 put spread in the KBW Regional Banking ETF, which closed the afternoon 1.3% higher at $28.70. We discovered that this extremely large-size 2-by-1 put spread involved 80,000 lots in the September 22.50 put bought 90 cents, and 40,000 lots sold at the 25 strike for $1.80, breaking even on the entire trade without a credit or a debit at the outset. Generally a trade in which the lower strike is bought and the higher strike sold is a bullish strategy initiated at a net credit, in which the trader plays on the spread narrowing and both puts expiring on a rise in the stock. In this case, the trader is doubling-up on downside protection in the event of a large blowout move below the 52-week low of $21.72 and hedging the higher short position if shares remain below the $25 line by mid-September.

MSFT- Heading into Microsoft’s earnings yesterday, we were mindful that long volatility positions hadn’t paid off particularly well for Microsoft traders. While January options had priced in nearly an 8% move, the actual move fell short of 1%. Again in April we saw option traders looking for a 6.6% move and only got about 5.9%. Traders were pricing in about a 5% move heading into the numbers this week and the implied volatility reading on all Microsoft options actually fell below the historic reading on the stock prior to the report – a very unusual setup ahead of earnings. So with today’s 7.7% decline to $25.40 it’s clear that it paid to go against the grain and long of volatility – and that downside disparity in implied volatility, coupled with the low time value of the Ju…

Today’s tickers: LUV, MFA, C, VIX, XLF, MSFT, BRL, CCL, ARM, BWA, PXP

LUV- It’s fair to bet that the relief rally sustained by airline stocks following a hard-won comedown in the price of oil and less-bleak than expected earnings from Delta and AMR Corp, wasn’t hurt by news that former airline analyst and gazillionaire contrarian investor Wilbur Ross had bet $80 million on a struggling Indian airline – and an announcement that his firm was “looking at everything that has been hurt by fuel” for similar other news. Coming in the thick of earnings season – and a week ahead of numbers from Northwest and Southwest Airlines – the Ross endorsement probably wouldn’t hurt the market’s appetite for calls, and indeed that’s what we’re seeing in options of Southwest Airlines, which traded at 11 times the normal level this afternoon. Shares closed 6.3% higher at $14.62, as it looks like traders unwound positions in July 15-strike calls and moved them to the August 15 strike on a volume more than twice the open interest, keeping upside expectations intact.

MFA- An unusual trade surfaced in MFA Mortgage Investments earlier today that not only sent the total option volume to some 133 times the daily average, but also stacked up to nearly 4 times the total open interest in MFA Mortgage Investments period. It appears as though the trade here was initiated by a seller at 25 cents per contract at the August 7.50 call line, suggesting little confidence in a return to price levels last seen in late spring. MFA Mortgage Investments is currently trading 41% off its 52-week high. Shares closed 2% higher at $6.35.

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Today’s tickers: XLE, AN, KMB, VIX, WB, F, AIG, DFS, EMC, INTC

XLE- Today’s $9 pullback in oil prices tempered some of the overweening bearish sentiment driving stocks lower, and sending shares in the Energy Select Sector SPDR 4% lower to $78.83. Given the overtones of Fed Chairman Ben Bernanke’s congressional testimony earlier today – which stated a fairly blunt case for demand erosion as well as his own commitment to combating the overarching inflationary threat – we were interested to see whether option activity would confirm or dispel a longer-term pullback below the $80 level. Earlier activity we noted in July 80 puts (trading to buyers and sellers) was later redoubled with heavy buying action at the 76 strike. The 4-to-1 overweight of put positions relative to calls indicates a very defensive posture among traders who are taking the demand erosion argument very seriously.

AN- Manna from heaven in the form of a $9 pullback in the price-per-barrel of oil helped leading automakers today…but did absolutely nothing for the likes of Autonation, the nationwide car dealership chain. Shares slumped 6.4% to $7.58 as we registered an increase in option trading volume to 28 times the normal level due to a massive, 31,000-lot position in October 5.0-strike puts. The 35-cent price tag on these puts – a 75% increase from yesterday’s level – and the 102% implied volatility (higher than the 89% reading on all Autonation options) suggest that these puts were subject to buying pressure. In any case, the implication here is of another 40% decline from current share price levels by mid-October, and looking at implied volatility versus the historic reading on Autonation stock allows us …