Macy’s (M, news, chart, volatility) options volume is running double the usual levels, with 20,000 calls and only 711 puts traded on the day. The January-10 15s are the most actives. 17,000 have traded on the bid. The top trade of the day is a block of 11,000 for $2.10 at 14:53 on the ISE. It coincided with a block of 539K Macy’s shares trded for $11.20 on the NASDAQ. It appears the two are tied and the investor sold calls against these shares (perhaps in a ratio of 2 calls for every 100 shares). If it is a buy-write (assuming 1 call sold for every 100 shares), the strategist lowered their cost basis for owning the stock to $9.10 and has upside potential to the strike price of the calls ($15) or 64.8 percent through the January 2010 options expiration.

Anheuser Busch (BUD, news, chart, volatility) calls are seeing heavy trading ahead of its earnings release (tomorrow during market hours). More than 32,000 of the December 65s have traded, with only 7 percent traded on the bid (61 percent mid market and 32 percent ask-side). 15,400 of the December 60s traded, with 80 percent trading on the ask-side of the bid ask-spread. With existing open interest well above today’s volume, some of today’s activity might be closing ahead of the report. Others might be buying calls on hopes the company will update shareholders about its merger talks with InBev. On October 31, Credit Suisse analysts said they believe the deal will close before yearend at $70 per BUD share. Others are not so sure. As evidence, the stock is down 90 cents to $63.70 Wednesday afternoon.

Follow up on the PG-SJM tender trade that has led to volume of nearly 1.7 million PG option contracts over the past eleven sessions. PG set the exchange ratio for PG to SJM at 1.6342:1, so for each share of PG bought for $66, arbs hope to receive 1.6342 shrs of SJM. Based on a 43.40 share price, 1.6342 shares of SJM would cost $70.92, so the discount appears to be nearly $5 per share. Since PG has capped the number of shares it will allow to be exchanged, traders expect to receive only a portion of their tendered stock as SJM, with the balance remaining PG. The conversion and married put trades we’ve seen in massive size allow an arbitraguer to buy fully hedged PG stock , then tender the shares and receive a mix of PG and SJM. The deep put part of the trade remains 100% PG, requiring the trader to buy some extra PG as part of the trade. The final leg involves shorting some SJM to reduce the market risk on that security. Based on the accuracy of their proration prediction a trader may be able to capture the discount with minimal risk. Costs to consider include commissions, borrow costs, and the risks inherent in the proration estimate.

Schering Plough (SGP, news, chart, volatility) is seeing bullish order flow for a second day. Yesterday, players stepped in and scooped up short-term November calls at the 20 strike. Today, an ambitious spread trader focused in on the January 17.5/22.5 call spread, paying 85 cents for a potential $6.65 and did this trade 11,000 times. Volume in both contracts is now 12,000 suggesting it might have been repeated more than once. Shares are down 62 cents to $14.88.

Cisco Systems (CSCO, news, chart, volatility) options are active ahead of earnings. 61,000 puts and 59,000 calls have traded midday. The November 18, November 15, and November 17 puts are leading the most actives and shares are down 52 cents to $17.81 in cautious trading ahead of the news. Analysts don’t expect any surprises. Of the 22 analysts that cover Cisco the range of estimates is narrow, between 38 and 40 cents. Consensus is 39 cents. In the previous quarter, CSCO posted 38 cents, which beat by two pennies. The stock gapped almost 6 percent higher on the news. The options market is priced for a similar move this time. Implied volatility in the November puts is near 75 percent, compared to 66 for December. The skew hints at a possible earnings gap move of $1.67 per share, or 9 percent, when CSCO releases results after the closing bell.

Synovus (SNV, news, chart, volatility) financial is seeing double its normal options trading volume on increasing put buying Wednesday. Shares of the Columbus, Georgia regional bank are down $1.00, or 9.2 percent, to $9.90 after Bernstein cut its rating from Outperform to Market Perform. Action in the options market seems to reflect an underlying sense of bearishness as well. 4,200 puts have traded, compared to 177 calls. The November 10 puts are the most actives, with 2,500 traded and more than 70 percent trading offerside. Buying is also being seen in the January 12.5, January 10, and November 12.5 put options.

Financials are giving back some of the gains made over the past weeks, with benchmark XLF down 46cents to $16.04. Among component stocks in the ETF, flow in WFC, C and BAC lead the activity, with WFC shares nearly 2% lower and larger declines in BAC and C. Option flow in all three names is relatively light, with call activity edging out puts and out-of-the-moneys seeing most of the volume. In one bullish trade, WFC Jan-09 35 calls, currently $1 from spot, were bought 1500x on the NYSE for $3.80, but 15 minutes later the opposite view was expressed as a buyer took 5000 Nov 34 puts for 1.825 on the ISE.

A large block of Harman (HAR, news, chart, volatility) puts was sold yesterday, post-earnings. The initiator sold 3,000 November 15 puts for 15 cents, apparently closing a position opened last week and realizing a loss of almost $2 a contract. The stock closed Tuesday trading for $20.85 a share and up almost $4.00 from last week when it seems the position was opened ahead of the electronic equipment company’s October 29 earnings release. A similar position still exists in the December 15 puts.

Yahoo (YHOO, news, chart, volatility) calls have seen an increase in buying interest in recent trade. Shares are up 49 cents to $13.84 and recently made a run to session highs on news Google (GOOG) has ended its agreement with Yahoo. The news comes a day after Bernstein analysts told Bloomberg that they expect the deal to fall apart and that, in turn, could help set the table for a $20 per share bid for Yahoo from Microsoft (MSFT) some time in 2009.

Chesapeake (CHK, news, chart, volatility) is seeing bullish order flow early. 17,000 calls and 2,850 puts have traded on the stock. Shares are up $1.43 to $24.38 on unsubstantiated takeover chatter. BP (BP) is being mentioned as a possible suitor.