Benign economic data, falling bond yields, rallying commodities help stocks. VIX falls. Read More.

Palm shares have been moving steadily higher and were recently heading towards session highs, up $1.42 to $13.41. PALM has now recovered the entire 6.5 percent loss suffered Monday on concerns about early sales of the new PRE mobile device. Shares are rallying following a shift in executive management, with Jon Rubenstein replacing company co-fouder Ed Colligan as CEO effective late Wednesday (Link to story.) There is also talk of a possible new mobile device in the pipeline–a Palm Pixie, expected to be a candybar-shaped device with a touchscreen and selling for $99. The device would go head-to-head with Apple’s new and cheaper iPhone (Link to story. Yesterday.) PALM is up on the speculation and trading in the options market is brisk, with 25K calls and 15K puts traded so far.

Activity is heating up in the US Natural Gas Fund (UNG). Shares of the fund, which tracks the physical commodity with futures contracts, are up 83 cents to $14.87 after bearish natural gas data and ongoing strength in crude (+1.55 to 72.88) conspired to send natural gas up 24 cents to $3.95. UNG options are hot as well, with 192,000 UNG options traded so far and call volume accounting for about 73 percent of the volume. June and July 15 calls are the most actives, with buyers dominating the action and hoping that a rebound in natural gas might fuel further gains in the ETF.

Call volume in Etrade Financial (ETFC) is off the charts! (Well Almost). Interest picked up in October 2 calls early today and more recently (around noon), the same Jan 2010 – Jan 2011 call spread trades that surfaced Tuesday re-appeared. In this reverse diagonal spread, the strategist is buying the Jan 2.5s and selling the Jan 2011 calls at the $5 strike, paying 17.5 cents today. The spread traded nearly 50,000 times two days ago and represents a substantial bullish bet on the online-broker: basically looking for a move beyond $2.50 by Jan 2010, but not above $5 through Jan 2011. While there is no specific news today, Flyonthewall notes that DJ reported “on June 9 ETFC is working with its largest shareholder, hedge-fund firm Citadel Investment Group, to shore up its financial position.” Hmmmmm.

The options market is bracing for a big move in Savient Pharmaceuticals (SVNT) next week. Options have seen hevy trading in recent days and implied volatility is moving higher, as investors key in on a pivotal June 16 FDA advisory panel ruling related to Krystexxa for gout. The FDA could at that time give indications regarding an eventual ruling on the drug. Shares are off 11 cents to $6.10 and, while 21,000 calls traded, or about 3X the number of puts, sentiment is cautious Thursday. ISEE sentiment data indicate that about 71 percent of today’s puts traded on the ISE, or 4000 contracts, are opening customer buyers. Sellers of June 10 calls surfaced early in the day. Meanwhile, implied volatility is elevated and still climbing, up 2.50 to 265 today and more than triple the levels seen mid-April. Meanwhile, the accompanying chart (click chart for larger view) shows open interest building in both puts and calls, as players brace for a big move in SVNT.

The CBOE Volatility Index (.VIX) has been pinned near 8-month lows over the past few days as market volatility has subsided substantially over the past weeks. The 20-day statistical (SV) or actual volatility of the S&P 500 is falling below 23%. Since VIX measures the expected volatility of the S&P 500, it’s not unusual to see it fall when actual volatility is declining (SV measures volatility based on closing prices). Consequently, VIX appears to have found a new home in a range below 30, perhaps in the mid-20s.


One player in the options market appears to bracing for a substantial change in the volatility landscape, however. The top VIX trades of the day are in the July options after a strategist bought 20,000 July 45 – 55 call spreads for an average of 42.5 cents. Since this spread is so deep out-of-the-money (strike price well above stock price), it is very cheap and offers a substantial reward-to-risk ratio. To be specific, excluding commissions, the payoff potential is $9.575 if VIX rallies beyond $55 by the July expiration. Obviously, the probabilities seem low, as it would take a substantial market move lower and or some type of “black swan” event to move the VIX ,the “fear gauge”, back to the mid 50s.

Bearish traders have Deere (DE) in their headlights Thursday. Shares are down 24 cents to $45.27 and more than 20,200 Sep 40 puts traded. According to one of WhatsTrading’s exchange-floor contacts, most of the volume is due to the purchase of a whopping 18,300 contracts for $2.85 per contract, or a $5.2 million dollar investment. The trade also included 700 contracts for $2.80 and 531,000 DE shares at $45.30. The overall delta of the total package is very negative and therefore it looks like a substantial bearish bet that Deere might be roadkill soon.

Assured Guaranty (AGO) implied volatility is moving. Shares of the bond insurer are trading down 60 cents, or 3.9 percent, to $14.92 and players in the options market are showing interest June 12.5 puts, with 2,815 traded, compared to open interest of 2,138. Open interest in June 15 puts increased by 3,900 following active trading yesterday. Implied volatility spiked to 95 today, from 80 the day before. No news today. An article on the Street.com today “Is it Safe? MBIA’s Break Up is Hard to Do” notes that “there is a lot of uncertainty for bond insurers.” Link to story.

PowerShares QQQ is up 27 cents to $37.09 and QQQQ June Quarterly puts at the $35 strike are the most active options contract Thursday morning. More than 120,000 contracts have now traded for 30 and 35 cents this morning. We’re being told by a contact on the exchange floor that these large block of puts traded from broker-to-broker. Since existing open interest is 9,447, the large block of puts are likely new positions and probably used to hedge an institutional client portfolio through the remainder of the second quarter. The QQQ Volatility Index, QQV, is moving up .28 to 26.83, a sign that demand for QQQQ options is driving up premiums. (Like VIX, which tracks the expected volatility priced into S&P 500 options, QQV tracks the implied volatility of QQQQ options.)

Shares of biotech company Human Genome Sciences (HGSI) gapped higher and are trading up 59 cents to $3.30 Thursday. The stock is moving after the company reported positive BENLYSTA results on lupus patients. In the options market, trading is brisk and volume is already running 5X the usual. The top trades include 2000 Oct 5 straddles on the ISE for $3.50, an opening buyer, according to sentiment data. Indeed, premium buyers seem to be dominating the action, as implied volatility has risen to 205, from about 193 the day before.