Stocks falter, as bonds buckle under pressure of poor auction results. Oil, VIX move higher. Read More.

Nabors Industries (NBR) is up 13 cents to $18.56 and sentiment in the options market seems somewhat bearish Wednesday. Not only is put volume outpacing call volume more than ten-to-one (16K vs. 1468), but the top trade of the day is a block of 6,600 July 15 puts at the offer for 50 cents on PHLX. More than 10K traded. Meanwhile, on the ISE, where about 2000 NBR puts traded, sentiment data indicates that 85 percent are opening customer purchases. No news on the oil and gas driller today. Implied volatility is up to 70, from about 68.5 Tuesday.

115,000 options contracts traded on the US Oil Fund (USO) Wednesday. The exchange-traded fund, which tracks crude oil through futures, is up 76 cents to $38.95 after crude rallied $1.16 to $71.14. Oil bubbled higher, as fears of inflation conspired with bearish inventory data to send prices to their best levels of 2009 (Link to story).

In the options market, July 38 puts and calls are the most actives, after one strategist sold the straddle (puts and calls) 8000X for $4.30 (against shares at $38.70), perhaps betting the rally will stall and USO will stay near these levels over the next few weeks. Another 11K Jan 35 – 39 call spreads also traded. The spread was sold in morning trading for $2.05 and $2.10, perhaps a roll of a bullish position in the 35s up to the $39 strike.

AK Steel (AKS) is showing relative strength and increasing call volume. Shares are up 58 cents to $19.68 and 18K calls traded, or about 3X the number of puts. Morning trades include 4,400 June 17.5 – 20 calls, which are possibly closing spreads. More recent trades include a sweep of 4,697 July 25 calls at the offer for 65 cents, which appear to be an opening call buy. Implied volatility is elevated, at 87, up from about 85 yesterday. Keybanc analysts said today that they see improved pricing and demand in US flat rolled steel. Raised their price target on AKS. Earnings due out July 21.

Currency Shares Euro Trust (FXE) is down $1.12 to $139.65 and not far from session lows after a poor auction of ten-year Treasurys sent bond yields and the dollar higher. The euro is under pressure and FXE, which tracks the EU/USD currency pair X 100, is seeing a third day of increasing put volume. 6,767 contracts traded, compared to 225 calls. July 138 puts are leading the flow, with some premium buyers probably positioning for the euro to dip below 1.38.

Call volume surged in NVidia (NVDA) Wednesday! 129,000 contracts traded, compraed to 9,300 puts. Today’s call volume represents 17X the normal and is largely the result of action by one trader: selling 10K June 11 calls and 43K June 12.5 calls while also buying 60K July 12 calls. This massive call buyer is probably closing out a position in the June options (which expire in 9 days) opened late-May/early-June and extending an optimistic view by opening a bullish position in July 12 calls. 37 days remain until the July expiration.

SPDR Homebuilders Trust (XHB) is down 18 cents to $12.43 and 15K June 12 puts traded. More than 12K traded on the ISE, where sentiment data indicate opening customer buy orders. Implied volatility is above 50, from 49 yesterday. Housing starts numbers are due out Tuesday, June 16, and the heightened put volume might reflect some uncertainty about the outlook for the homebuilders. XHB is an exchange-traded fund that holds shares in two dozen housing and homebuilding stocks. (Click here for more info.)

Bonds buckled as stocks rebounded early Wednesday and on reports Russia was planning on reducing its purchase of Treasurys, just as massive supply looms. The benchmark ten-year Treasury note dipped down to test 7-month lows and was recently down 11/32nd, pushing its yield to 3.9 percent. Bond traders now shift their attention to the Fed’s Beige Book and an auction of $19 billion in ten-years this afternoon.



Some investors appear to be positioning for a rebound in Treasurys. The iShares Long-Term Bond fund (TLT) is down 69 cents to $88.91 and 25K calls traded, compared to 1,415 puts. Top trade is 8000 June 92 calls on the ISE for 50 cents, an opening customer buyer, according to sentiment data. The July 91 – 94 – 95 – 98 condor discussed yesterday (link) has also traded 2500X (closing already???).

Select Sector Financials (XLF) June 12 call is the most active options contract in the first hour of Wednesday’s session. 93.4K traded. The bulk of the volume appears to be part of a 1X2 ratio spread involving 45K June 10s and 90K June 12 calls. With XLF unchanged at $12.50, the spread likely closes a position ahead of next week’s expiration (possibly one opened in early March with XLF around $7.25). June 11 – 13 call spread trades 30.5K, also looks closing.

Overseas Shipping Group (OSG) is showing impressive strength and call volume is picking up Wednesday. Shipping stocks (DRYS, EGLE, TBSI, DSX, GNK, EXM, NAT) are seeing mixed trading, but OSG is up $3.94 to $39.40. June 40, July 40, and July 45 calls are the most actives. Looks like speculative call buyers driving a lot of the action and looking for OSG to continue its recent running higher over the next few days and weeks. Implied vols are little changed at 63 percent.