Implied volatility is easing in the insurance sector after Hartford (HIG, news, chart, volatility) said its property and casualty insurance units are well capitalized and it will end 2008 with a $2 billion capital margin. Shares, which fell 57.6 percent last week after the company said investment losses resulted in a hefty $2.63 billion loss in the third quarter. The news stoked liquidity fears that sent the entire sector reeling. Today, however, HIG is up $4.84, or 47 percent, to $15.16 and implied volatility is down towards 200, well below the record highs near 290 seen late last week. Prudential (PRU) and Assurant (AIZ) implied volatility is also easing off recent last week’s extremely high levels.

McKesson (MCK, news, chart, volatility) calls are being bought, even as the stock falls on an analyst downgrade Monday. Argus lowered the stock from Buy to Hold due to a more cautious outlook for the second half of 2009. Shares of the San Francisco-based phamaceutical wholesaler are down 80 cents to $35.99 and the January 40 calls are the most actives. More than 6,000 have traded, including a block of 4,100 calls traded on the offer for a $1.90 a contract at 11:15 on the NYSE. Open interest is 393, suggesting an opening buy order.

Solarfun (SOLF, news, chart, volatility) is up $1.22, or 10 percent, to $7.32 a share and volume in the options market is running double the usual. 6,100 calls and 135 puts have traded on the day. Most of today’s trades has come in orders for 200 contracts or less and is concentrated in the November 7.5 calls. It is isn’t clear what is driving the bullish action in the shares or the options as there is no news on the stock yet today. For whatever reason, it appears that investors are looking for upside gains in the Qidong, China-based alternative energy company.

Starbucks (SBUX, news, chart, volatility) is seeing bearish order flow. 14,000 puts and 2,000 calls have traded on the day. The top two trades of the day: 927 SBUX December 12 puts offerside for 95 cents a contract and 927 December 10 puts bidside for 38 cents. The spread was repeated several times until volume in both contracts jumped to more than 6,300. With today’s volume now significantly greater than existing open interest (1,043 in the 10s and 300 in the 12s), the action looks like opening spreads. If so, the strategist or strategists are possibly looking for a move lower in SBUX and are buying the 12s, selling the 10s, for a net debit of 57 cents. The potential payoff is $1.43 if the stock falls to $10 or less by December options expiration (46 days). Shares are down 35 cents to $12.78. Earnings due out a week from today.

Interesting volume in calls on Hawaiian Airlines (HA, news, chart, volatility) this morning, with shares up slightly near $7.01. In what looks like a ‘legged’ spread, a trader bought 1400 Jan-09 5 calls for 2.50, sold 1200 April 5 calls for 2.80, bought 1100 Jan-09 10 calls for 45cents, and appears to have sold 1150 Jan-09 7.5 calls for 1.05. The net effect looks similar to a butterfly, with the customer long the 5 – 7.5 spread, and short the 7.5 – 10 spread and positioned to profit if shares lift slightly. Open Interest in the Jan 5 thru 10 strike is nearly 15,000 contracts each and call sellers were active in October. Given that shares have regained nearly $1.50 over the past two weeks, today’s flow suggests closing of short calls and a possible limited upside view.

Lions Gate Entertainment (LGF, news, chart, volatility) is seeing bullish order flow early. Volume in the options market is running four times the usual, with 10,000 calls and 70 puts traded on the day. Shares are unchanged at $7.00 and the January 2010 7.5s are the most actives, with 5,100 traded offerside. Active buying is being seen in the January 2010 10 and November 7.5 calls as well. No news on the Vancouver-based movie production company and the volume does not exceed open interest. Therefore, today’s action might be closing. Nevertheless, it is noteworthy as directional sentiment based on the early order flow in LGF is 99 percent bullish.