Cardinal Health (CAH, news, chart) is seeing bearish order flow despite gains in the share price. The stock is up 77 cents to $53.27 and volume in the options market is running three times the usual. 2,800 puts have traded, compared to 443 calls. The August 50 puts, which have open interest of 816 contracts, are the most actives. 2,255 contracts traded, with 88 percent of today’s volume trading offerside. Take together, the action hints at opening put buys and comes a week before the company is due to report earnings.

The SPDR Retail Trust ETF (XRT) is seeing bearish order flow. The fund tracks the performance of the S&P Retail Select Index, which is an equal weighted index that tracks shares of 53 different retail store companies. XRT is holding higher Thursday morning, up 18 cents to $30.36 a share. In the options market, however, trading seems defensive, with 11,000 puts and only 43 calls traded on the day. Most of the volume can be traced back to blocks (6,000, 3,000, and 3,000 contracts) of August 27 and 28 puts that traded offerside on the AMEX shortly after 10:15 a.m. Eastern time Thursday morning.

WR Grace (GRA, news, chart) is seeing action for a second time in two days. Shortly before 11:00 Eastern time Wednesday, WhatsTrading.com noted increasing volume in GRA call options after the Financial Times Deutscheland reported that BASF might be interested in acquring the company. GRA was trading up 5 percent to $24.71 t the time. It has since moved up to $25.70 and the interest in the options market continues. Total volume is running three times the usual, with 10,000 GRA calls and 477 puts trading on the day. The August 27.5s and August 30s are the most actives, with roughly half of today’s volume trading offerside. While some players might be banking profits in some of these calls, others seem to be buying them in anticipation the short-term rally can continue. August options come off the board in a little more than two weeks.

Some biotech stocks are seeing action following news that Bristol Meyers (BMY) is acquiring Imclone (IMCL) for $60.00 a share. The news comes a little over a week after Roche made a bid for Genentech (DNA). Consequently, the wave of merger activity has the spotlight on the sector and the group is outperforming. The Biotech HOLDRS (BIO) are up $2.70 to $203.70 a share. In the options market, Amgen (AMGN, news, chart) is among the most actively traded biotech names Thursday morning. By 11:00 a.m. Eastern time, volume was running 270 percent greater than usual (relative to the expected volume for that time of day). Of that, 28,000 calls and 3,000 puts have traded. Most of the action is in the October and January calls, where some players seem to be taking bullish trades on AMGN, perhaps on the view that the merger activity now puts it in play. Amgen is a competitor to both DNA and IMCL.

Coeur D’alene Mines (CDE, news, chart) is seeing bullish order flow early. The stock is up 13 cents to $2.76 amid strength in gold mining shares. The PHLX Gold and Silver Mining Index (.XAU), of which CDE is a component, is up 1.80 to 173.51 after the precious metal rose $14.90 to $917.80 an ounce. In the options market, 18,000 CDE calls traded, compared to 2,000 puts. The September 2.5s are the most actives. 16,600 contracts have already crossed the tape, with 84 percent of today’s volume trading offerside. With open interest of 9,286, today’s action hints at speculative call buying in anticipation of further upward movement in Coeur D’alene’s share price.

EMC Options Open Interest Changes
+57656 EMC Aug-08 15 C, OI=93080
+16873 EMC Aug-08 16 C, OI=30358
+13691 EMC Sep-08 15 C, OI=24501
+12351 EMC Sep-08 16 C, OI=17622
+11049 EMC Jan-09 20 C, OI=286118
+10911 EMC Sep-08 13 P, OI=15398
+10650 EMC Jan-09 12.5 P, OI=235974
+8558 EMC Jan-09 15 C, OI=141879
+6446 EMC Aug-08 17 C, OI=16672
+6021 EMC Sep-08 17 C, OI=6790

EMC Corp. (EMC, news, chart) is building on Wednesday’s gains and trading in the options market remains active. Yesterday morning, call volume surged and the action was later attributed to takeover chatter (per Reuters). Today, the stock is up 25 cents to $15.29 and 28,000 calls have already traded, or roughly ten times the number of put options. At the same time, open interest in EMC calls saw big increase from yesterday. For example, in the August 15s, open interest rose by 57,656 contracts to 93,080 and in the August 16s, by 16,873 to 30,358 contracts.

The International Securities Exchange Sentiment Index [ISEE] is on the rise. The ISEE is a unique indicator that tracks the day’s call buying on the International Securities Exchange [ISE] divided by put purchases (multiplied by 100). So, if the ISEE is 150, call buying is running 1.5 times greater than put buying–a sign of relatively high levels of bullishness among investors.

On Wednesday, the ISEE applied to equity options (excluding indexes and ETFs) finished the trading session at 148 and its best levels since July 8. The chart below shows the recent uptrend in the index. The recent rise reflects the improved sentiment that has helped support the stock market’s push higher over the past two weeks. Simply put, investors are becoming less bearish and money is flowing back into equities.

click for larger view

From a contrary view of the markets, some might wonder if investors have become too optimistic or bullish in the short-term. Well, the last major turning point for the equity market was on May 16. On that same day, the index rose to 225. So, by past measures, a reading of 148 is not extreme. Far from it. There is still plenty of room for the ISEE to move higher from here. Click ISEE for the latest readings.

HSBC (HBC, news, chart) saw some bearish spread trading Wednesday ahead of an August 4 earnings release. In morning trading, 5,000 of the September 80 puts traded offerside or for $2.60 a contract on the ISE. Meanwhile, the same number of 70s traded bidside or for 70 cents a contract. Open interest in those two contracts increased by 4,321 and 4,849 contracts, respectively, which seems to suggest that these two large blocks of puts were opening trades. If so, the strategist in question is possibly buying the 80s and selling the 70s for a net debit of $1.90 per spread, with a maximum potential payoff of $8.10 if shares of HSBC fall to $70.00 a share or beyond by September options expiration.

Wells Fargo (WFC, news, chart) continues to attract a lot of bearish spread trading despite the recent rebound in the stock. WFC rose 74 cents to $31.20 Wednesday and is now well off (52.5 percent) a 52-week low of $20.46 set two weeks ago. One strategist seems to be betting that the rally will soon run out of steam, however, and is playing the stock with a directional butterfly spread. Just before the closing bell, an order of 30,000 WFC October 20 puts traded bidside or for 40 cents a contract. Meanwhile, 15,000 of the October 12.5s traded askside for a dime and 15,000 of the October 27.5s traded midmarket for $1.80.

All traded on the PHLX, where sources tell WhatsTrading.com the activity was part of an October 12.5/20/27.5 butterfly spread. If so, this big time player paid $1.10 per fly with a potential payoff of $6.40 if WFC settles at $20 at October options expiration. The profit zone at expiration is between, roughly, $13.75 and $26.50.

Plains Exploration and Production (PXP, news, chart) saw five times its normal trading volume on what appears to be strangle buying Wednesday. The stock rallied $3.62 to $58.08 with help from bubbling crude oil prices. Some players seem to be expecting the volatility to continue and are trying to play the trend with the November 60/55 strangle. Just before 11:00 Eastern time, an order of 2,300 of the 55 puts traded offerside for $7.54 a contract on the ISE. At same time, 2,300 of the 60 calls traded askside for $5.41 a contract. Open interest in the two contracts is 397 and 318 contracts, respectively. Consequently, today’s volume seems to represent opening transactions. In addition, volume in both contracts rose to more than 3,700 contracts on the day, which suggests that strangle might have been repeated more than once. PXP is a volatile energy stock with a 52-week high and low of $79.86 and $35.31. Earnings due out on August 6.