Until this morning most traders believed MidAmerican’s $26.50 cash deal for Constellation (CEG) would close shortly. Shares were trading in a tight range near $25 for most of the past month and closed yesterday at $25.15. Options prices reflected this expectation by trading with virtually zero time value for out-of-the money contracts (since conversion to cash leaves no price volatility once the deal has closed). In fact, the Dec 25 calls were quoted 15cent bid, 30cent offer for most of the day yesterday, until a seller appeared, posting a 20cent offer for 451 contracts on the Amex near the end of the day, and finding no buyers.

Eventually the seller managed to find a buyer for the trade, with 1776 contracts trading on the day, and 990 contracts printing for 20cents late on the Amex. Open interest grew by 1673 contracts, confirming this to be an opening sale, netting the seller a total of about $30,000 before commissions.

Unfortunately for the seller, EDF trumped MidAmerican’s bid overnight and shares this morning touched $30 before settling back to current levels near 28.40. The seller’s quick 30K is a paper loss of about $600,000.00, and provides a painful lesson about writing options for low premium levels.

Retailers are showing relative strength ahead of tomorrow’s November same store sales results. Not much good news is expected. Although consumer spending might benefit from falling gasoline prices, recent data suggest that consumers continue to cut back on discretionary spending. Overall November chain store sales are expected to fall 1 percent year-over-year, according ISCI/Goldman retail sales estimates. Yet, the sector is strong today, with the Retail HOLDRS (RTH) up 77 cents to $69.95. The top options trades in the RTH are a 1 x 2 January 70/55 put spread tied to shares at $68.55. The MS Retail Store Index (.MVR) is up $1.18 to 82.59 and sentiment in the options market seems a bit more bullish, as there has been steady selling of December 70 puts for $1.05 a contract throughout the session today.

CIT Group (CIT, news, chart, volatility) shares are 17% higher today, near 4.05, following a 21% climb yesterday on news of an oversubscribed debt offering by the commercial finance company. Flow today is dominated by call trading, with buyers of the Dec 5 strike suggesting a view that shares may continue to climb. 12,000 Dec 5s have traded, priced from 20 to 40 cents, lifting implied vols more than 20points to 210%.

The homebuiders are showing relative strength after a report released early Wednesday showed a record number of mortgage applications last week. The number of loans was helped by a new Federal Reserve program that pushed rates to 3-year lows. The SPDR Homebuilder Trust (XHB) hit a three-week high of $12.30 early and is holding gains despite broader market weakness. XHB, which holds shares of 21 homebuilding companies, is up 59 cents to $11.64. 15,000 calls have traded on the ETF, roughly 18 times the number of put options. The December 11 calls are the most actives. 10,120 traded, compared to open interest of 2,198.

Genzyme (GENZ, news, chart, volatility) is seeing bullish order flow Wednesday. Shares are up $2.46 to $62.50 and pacing an advance in the biotechnology sector after Oppenheimer upgraded the stock to OutPerform with a $75 price target, saying they believe upcoming regulatory events could serve as positive catalysts for the share price. In the options market, volume is running three times the usual. The top trade of the day is a block of 3,000 January 50 puts for $1.00 traded on the PHLX, which was a customer sell order. The next three biggest trades printed early on the NYSE and appear to be part of a three-legged trade where an investor bought the January 65/72.5 call spread 2,000X for $2.30 and sold the same number of January 55 puts for $2.30.

Ciena (CIEN, news, chart, volatility) is seeing bullish order flow ahead of earnings. Total volume is running at two times the usual, with 4,000 calls and 800 puts traded today. With shares are up 30 cents to $6.80, the January 10 and December 7.5 calls are the most actives. 1,700 have traded in each, with about 96 percent traded offerside. ISEE sentiment confirms opening customer buy orders, which comes a little more than week ahead of the network equipment maker’s December 11 earnings release.

Quanta Services (PWR, news, chart, volatility) has seen 4x usual volume so far today, most as part of a bullish 3-way. The Jan 17.5-20 C sprd was purchased for .85, with sale of Jan 12.5 P @ .85. Each side traded 2500 times and is opening in the 12.5s and 17.5s. The net cost of the trade is zero with max profit of 2.50 with stock >= 20. max loss occurs below 12.5, but the seller may be willing to own the stock at that level. Trade time was around 12:30 Comment courtesy of E. Pawelec (Nova Capital Markets)

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Options on Silver Wheaton (SLW, news, chart, volatility) remain actively traded. The March 2.5 and 5 calls saw massive increases in open interest after yesterday’s surge in activity: 13,155 and 20,266 contracts, respectively. Today, total volume is running twice the usual, as shares move up 35 cents to $3.48. The same two contracts are again leading the flow Wednesday, with 3,700 March 5s and 1,800 March 2.5s traded. There seems to be a mix of buying and selling, with some players possibly closing out trades from yesterday after the bump in the share price today.

The S&P 500 is up 15 points to 863.81 and making a run back to session highs (864.21). 865 represents the .618 Fibonacci retracement of Monday’s decline. 109,000 SPX puts have traded, roughly double the number of calls. The CBOE Volatility Index (.VIX) is down 2.71 to session lows 60.27.