Stocks trade in narrow range. VIX slips to 8-month lows. Read More.

JetBlue (JBLU) gained 22 cents to $4.48 and 5,000 calls traded on the airliner, compared to only 43 puts, Tuesday. The top trades of the day hit the January 2010 calls at the $5 strike in morning action when JBLU was near $4.30. 2,000 contracts traded total and, according to a contact on the floor, at least 1,000 were part of “buy-write” or covered call strategies.

In most “buy-writes”, 1 call is sold for every 100 shares and the strategy is used to generate income from an existing position and or lower the cost basis of purchasing shares. For example, using JBLU closing prices, shares can be purchased for $4.50 and the JBLU Jan (2010) call at the $5 strike is bid for 95 cents. Assuming the strategist can collect $1 even for the calls against shares, the cost basis for each JBLU share falls to $3.50 (per 100 shares because the multiplier is 100).

The cost basis of $3.50 ($4.50 per share minus $1 per contract) becomes the new downside breakeven, which is 22.2 percent below the current share price. The upside through the January expiration is $5 (the call strike price). A move to $5 (+11.1 percent) by the expiration will result in assignment of the call and the investor will surrender 100 shares per call option for a profit of $1.50, or 42.9 percent.

For more recent buy-write examples click here. For the best real-time ideas and stories including buy-write and other strategies, click here.

Good Trading!

Morgan Stanley (MS) is down 56 cents to $30.83 and 70K puts traded today, compared to 16K calls. The top trade is a block of 15K July 27 puts for 90 cents at 10:36 on the PHLX, which was an initiated as a purchase, according to a floor contact. About 30 minutes later, 6,500 more were bought for $1.00. 26K now traded. Meanwhile, in afternoon trading, a block of 10.8K July 29 puts traded on the ISE, which was an opening customer buyer, according to sentiment data. So, it appears that large buyers are driving the increased put volume in Morgan Stanley. The interest is sending implied vols back to 57, from multi month lows around 54 seen the day before.

TLT iShares Long-Term Bond Fund (TLT) is down 29 cents to $89.32 and came under a bit of pressure following the latest auction of 3-year Treasury Notes. While the bid-to-cover was at the high end of expectations and the foreign participation was also strong, bonds sold off on the news, as the overall results failed to stem concerns about rising borrowing costs and massive supply (2 more auctions this week). TLT is falling below $90 per share and its lowest levels in almost a year.

In the options market, the top trades seem to reflect a bullish view on the fund, however, after a strategist apparently opened 2500 July 91 – 94 – 95 – 98 call condor–probably selling the middle strikes for the body and buying 91 and 98s for the wings. If so, it a bullish spread with a max pay-off if TLT settles between $94 and $95 at the July options expiration.

Traders are seizing Sequenom (SQNM) calls!!! Shares are up $1 to $4.35 on talk of a positive resolution to an anticipated SEQureDX launch–Briefing. Trading in the options market is brisk, with 25,000 calls and 6,000 puts traded. The activity is scattered–June 4, June 5, Sep 7.5, and July 5 calls are the most actives. Heavy buying is being seen and directional sentiment based on the total order flow is 70 percent bullish. Implied volatility rallied to 156, from about 122 the day before.

Stocks are trading in a tight range Tuesday. With not much news to guide the morning action, the S&P 500 traded in a narrow 9-point span.

Texas Instruments (TXN) is helping the tech sector after raising second quarter earnings guidance. The tech-heavy NASDAQ is up 18 points. American Express (AXP) is the best gainer in the Dow Jones Industrial Average, gaining 4.5 percent on news it will repurchase $3.9 billion in preferred shares from the government.

Chevron (CVX) is also helping the industrial average after crude gained $1.17 to $69.26. Gold is up $5.20 to $957.70 an ounce.

Overall, however, trading is mixed, with 16 Dow stocks higher and 14 lower. Relative weakness continues in some of the cyclical names–BA, UTX, and HD–for a second day. Consequently, the Dow has mustered only a modest 10 point gain.

The quiet trading has the CBOE Volatility Index (.VIX) down .93 to 28.84. Approximately 3.2 million puts and 3.8 million calls traded across the exchanges, a ratio of .84 (22 day average = .76).

GM June 1 calls is the most actively traded contract. Shares are up 25 cents to $1.46 despite the recent bankruptcy. Some players appear to be selling June 1 calls on the strength, with 74.4K contracts traded and 53 percent of the volume hitting bid-side of the bid-ask spread.

Meanwhile, solar names (CSUN, LDK, STP) are seeing relative strength and some players have been snapping up calls on JA Solar (JASO).

Bullish trading is also being seen in Etrade (ETFC), Mirant (MIR), and Officemax (OMX). Bearish trading is picking up in YRC Worlwide (YRCW), Royal Caribbean (RCL), and the Currency Euro Trust (FXE).

The CurrencyShares Euro Trust (FXE), an exchange-traded fund that tracks the USD/euro currency pair (X100), is up $1.35 to $140.42 and rebounding from 4-day, 2.9 percent, slide. In the options market, some traders seem to be using the strength to enter bearish trades. 5,635 puts and 1,300 calls traded. Buyers of July puts at the 136, 138, and 139 lines are leading the flow. Implied volatility is steady at 15.

The solar sector is shining Tuesday. A number of names (CSUN, LDK, STP, CSIQ) are seeing relative strength. JA Solar (JASO) is among them. Shares are up 83 cents to $5.98 and, in the options market, sentiment seems bullish as well. 8,900 JASO calls traded so far, compareddto 2,000 puts. Today’s call volume represents almost 9X (878 percent) the expected and is focused on Sep 5, June 7.5, and June 5 calls. Implied volatility is moving as well, to 116, from about 109 the day before. Premium buyers are driving the order flow and sending premiums (implied volatility) higher and probably betting that shares will continue shining in the days and weeks ahead.

GM June 1 call is the most actively traded options contract in the first two hours of trading Tuesday. The action in the share price remains somewhat puzzling. After being de-listed on the NYSE, shares traded under the symbol GMGMQ and are up 34 cents to $1.55 despite the bankrtupcy. In an FAQ section on GM’s web site, the company notes “we think it is unlikely that you (shareholder) will receive payment (on cancelled shares)” Link. The new GM will be joint owned by the government (60 percent), Canada (12.5 percent), and UAW (17.5 percent). Nevertheless, shares are up 72 percent this week and 61.5K June 1 calls traded today. (Please post comments if you have any additional insights on GM).

Texas Instruments (TXN) options volume is running 10X the expected for the first hour of trading. 22K calls and 20K puts traded so far. Shares are up $1.07 to $20.84 and players in the options market are scrambling Tuesday morning after the chipmaker surprised the Street with upbeat guidance. TI says it expects 14 to 22 cents per share in the 2nd quarter, compared to 10 cents analyst estimates (Link to story.) Premium sellers are driving a lot of the flow and implied volatility is falling back to multi-month lows below 33, down from about 38 the day before.