Biotech HOLDRS (BBH, news, chart, volatility) are trading up $5.50 to $180.30 and volume in the options market is running ten times the usual. 5,870 calls and 0 puts have traded on the fund. Most of the volume appears to be part of bullish spread trading. For example, at 11:36 Eastern Time, 700 of the November 190 calls traded offerside for $3.20 a contract and 700 of the November 200 calls traded bidside for 70 cents.

The pattern was repeated several times across multiple exchanges until volume in both contracts reached 3,500. With very little open interest in either contract, the action appears to be opening bull call spreads. If so, the strategist is paying a $2.50 debit for the opportunity to make $7.50 if BBH, which is a fund that holds Biogen (BIIB), Amgen (AMGN) and a dozen other biotech stocks, rallies to $200 a share or more by November options expiration (52 days).

Noted some possible bottom fishing in EEM yesterday with a large seller of 10000 Oct 32 puts when ETF was at 33.08. Today call buying is picking up, with a buyer of 13,500 Oct 35 calls for 1.60 and word that the buyer is looking for more at that price level.

Bullish order flow resurfaced in Jabil Circuits (JBL, news, chart, volatility). Shares are trading for $9.12, unchanged on the day. In the options market, 8,500 calls and 1,300 puts have traded. The December 12.5 calls are the most actives. 6,600 have traded, with 77 percent hitting offerside. Volume exceeds open interest, indicating that some of today’s volume is possibly opening buy orders. There is no stock specific news on the St. Petersburg, Florida based technology company. Jabil gapped higher on earnings last Friday. JBL calls were active in early August amid takeover chatter.

Banks Remain Reluctant to Lend

Money Markets Locked

Rate Cuts?

The top five trades in the US options market so far today have been on the PowerShares QQQ Trust (QQQQ). After falling $3.26 to a two-year low of $37.82 Monday, the Qs have staged a modest rebound. The exchange-traded fund, which holds the NASDAQ 100 companies, is up 30 cents to $38.12. Trading in the options market remains defensive. The top two trades of the day are two blocks of 52,500 October 36 puts traded on the offer for $1.02 a contract at 10:15 on the CBOE. Volume in those puts is now 116,526, compared to open interest of 32,968, which suggests opening buy orders. A minute later, a block of 43,700 QQQQ October 41 puts traded on the offer for $3.72, also on the CBOE.

The next two trades appear to be bullish bets, however. A block of 40,000 QQQQ October 42 calls traded on the offer for 34 cents on the ISE at 10:48 and 20,000 of the October 47 calls traded on the AMEX for a nickel at 10:48. Implied volatility in the Qs, as measured by the AMEX QQQ Volatility Index (.QQV), is down 5.95 to 43.82. QQV hit a 6 year high of 52.18 on Monday.

American Tower Group (AMT, news, chart, volatility) options are unusally active this morning, led buy a block of upside calls bought on the ISE an hour into the day. 9662 Jan 50 calls were bought for 33cents and appear to close a short call position built earlier this year when stock was nearly $10 higher.

Apple Computer (AAPL, news, chart, volatility) is trading higher today, just above $109 and a large block of October 120 Puts appears to have been scalped on the ISE around 10am. 27min into the day. With stock up $2.08 to 107.34, 15,000 contracts were crossed for $17, follwed 25minutes later by similar sized block traded at $14.95. If a broker-dealer positioned the first block selling to the customer, then later found a willing seller when the stock was nearly $2 higher, this scalp would have netted 2.7 million to the BD.

CVS (CVS, news, chart, volatility) calls are active. With shares up 14 cents to $32.81, 10,000 call options have traded, compared to 176 puts. The action is in the October 32.5 and October 35 calls and appears to be bullish spread trading. 5,000 of each have traded. For example, at 10:15 Eastern Time, 2,500 of the 32.5s traded offerside for $1.70 and 2,500 of the 35s on the bid for 46 cents. In this case, it appears the stategist is buying the lower strike and selling the higher strike for a debit of $1.24 a contract. If so, the trade is a bullish one that yields its best profits if CVS rallies to $35 a share or more by October expiration (17 days). There is no news on CVS today. Yesterday, Walgreen’s (WAG) CEO said his company was committed to its hostile takeover of Long’s (LDG), which has already accepted a takover offer from rival CVS.

After losing more than half it’s value yesterday and closing at a precarious $1.36, National City is rebounding a bit, currently near 1.80 as traders contemplate the possible paths the smaller financials may follow. Option flow is bullish, with call buyers lifting upside October strikes, particularly the Oct 3 calls, where nearly 12,000 have traded.

CBOE Volatility Index (.VIX) puts are seeing action. The December 22.5s are the most actives, with 12,100 traded. Another 2,000 of the November 20s have traded. Some traders might be looking for VIX to fall after hitting record highs of 46.72 Monday. VIX is now down 5 to 41.72 after global equity markets stablized Tuesday morning. December futures on the volatility index are down .88 to 27.15 and well below the spot VIX, suggesting the market is pricing in a return to normalcy over the next few months. However, the actual volatility of the S&P 500 (.SPX), as measured by 20-day Statistical Volatility, is near 43 percent. For that reason, it would probably take convincing evidence that actual volatility is easing before the VIX can see a dramatic move lower from here.