Stocks give up early gains to finish mixed. VIX falls. Read More.

Legg Mason (LM) shares gained $2.42 to $24.46 and 19,000 calls traded on the investment firm Wednesday, compared to 3000 puts. Bullish trading surfaced early in the day when shares were around $23 (see 10:15 comment–Premium)



The increased activity is probably related to a report in The Telegraph that said activist investor Nelson Peltz is planning a campaign to oust some of Legg Mason’s management.Citing unnamed sources, the British newspaper says Peltz has secretly purchased 9 pecent of LM (link to story). Players in the options market seemed to like the news, as July calls with strike prices ranging from 23 to 26 saw heavy buying Wednesday.

Zimmer Holding (ZMH) shares are up $0.25 to $42.30 and options are seeing 3x the average daily volume (chart.) For the second consecutive day there is selling of the July $45 calls. Yesterday over 6,960 contracts traded with nearly all translating into new open interest. Today that strike has seen 4,600 contracts trade 95% hitting the bid. IV is off 2% to 32.7% on the day.

Amylin Pharmaceuticals (AMLN) is up 67 cents to $12.51 and sentiment in the options market seems somewhat bullish Wednesday. 11,000 calls traded so far, or about 6X the expected for midday (840 puts.) August 12.5 calls are the most actives, with most of today’s 6,800 contracts traded mid-market (between bid and offer). Meanwhile, it appears that buyers dominating the action in July 12.5 and 15 calls. No news on AMLN today, but the stock has seen interest in the past on unsubstantiated talk partner Eli Lilly (LLY) might make a bid for AMLN. Meanwhile, the stock is facing an important resistance area at $12.5. The pattern appears to be an ascending wedge that, if the resistance gives way, could signal a new leg higher in the stock’s recent uptrend (chart).

Take Two Interactive (TTWO) calls are seeing more action than usual. 3,760 traded, or more than 5X (564 percent) the expected for midday. Shares are up 45 cents to $9.35 and Sept 10 calls are leading the flow, with 2,600 traded and 89 pecent hitting ask-side of the bid-ask spread. 61 percent of today’s volume traded on the ISE, where sentiment data indicate that 82 percent of the calls (1097 contracts) are opening customer call buys. No news on the stock. Earnings due out early September. Implied volatility steady at 68 percent.

Expedia (EXPE), which saw a surge in volume yesterday on a negative newsletter mention, is seeing a second day of heavy put activity (chart). Shares slipped Tuesday and more than 21,800 July 15 puts traded after a newsletter recommended investors buy the contract. Interestingly, although put volume surged, open interest increased by only 5,336 to 7,248, suggesting a lot of the activity was opening and closing during the same session. Another 8,000 contracts traded today, but with 65 percent hitting bid-side, it looks like sellers are dominating the action. EXPE is up 47 cents to $15.53 and implied volatility is also up: to 67, from about 65 yesterday and 60 before the frenzy began.

Bullish trading continues in Indianapolis-based healthcare plan provider Wellpoint (WLP). Shares are up 85 cents to $49.68 and 18,000 WLP calls traded, compared to only 495 puts. The top trades of the day seem to reflect a bullish view on the stock after the August 50 – 55 call ratio spread trades 5000 times for 42 cents on the ISE. That is, an investor bought 50,00 August 50 calls while selling 10,000 August 55 calls, creating a bullish spread with a max pay-off if WLP moves up to $55, or 10.7 percent, by the August expiration (58 days.)

Today’s bullish flow is part of a trend. Shares are up 8.6 percent since June 12 and heavy call volume has accompanied the move higher (chart). The action has also resulted in a substantial increase in open interest in Wellpoint calls, from about 60K contracts on June 11 to 100K today (chart). The action suggests that investors (smart money) expect the recent bullish run to continue and have been opening new positions in anticipation of the move higher.

SPDR Homebuilder Trust (XHB) is up 29 cents to $11.57 and making a run to session highs despite bleak housing data. New home sales fell .6 percent to an annualized rate of 342K in May, according to data released 15 min ago. Economists were looking for an increase to 360K. XHB wavered on the news, but has since moved to its best levels of the day. XHB July 12 calls are seeing some action, with 4,369 traded, compared to open interest of 12.1K.

Stocks are set to open higher on better-than-expected economic and earnings news. About forty-five minutes before the opening bell on Wall Street, stock index futures indicate that the Dow Jones Industrial Average might gain 60 or 70 points at the open.

Orders for durable goods rose 1.8 percent during the month of May. The increase matched the 1.8 percent in April and was well beyond economist projections, which called for a decline of -.9 percent.

Stock index futures were in positive territory and extended gains on the news. Profit results from Oracle (ORCL), which are considered a barometer for spending in the tech sector, helped as well. The software giant said it earned 46 cents per share on $6.86 billion in revenues. Analysts were looking for 42 cents on $6.47 billion. ORCL is up 4.3 percent.

Attention now turns to data on new home sales and the Federal Reserve rate decision announcement. Economists expect the home sales report, due out at 10:00 a.m. eastern time, to show home sales reaching an annualized rate of 360,000 in May, up from 352,000 the month before.

The Federal Reserve Open Market Committee is expected to keep rates steady at the conclusion of their meeting on monetary policy. However, investors will look over the post-meeting text, released at 2:15 p.m., for clues regarding future monetary policy.

Bonds are lower on the strong durable goods number and ahead of the FOMC decision. The benchmark ten-year Treasury lost 9/32nd and yields 3.66 percent.

The dollar edged up .12 to 95.37. The euro lost .0016 to 1.4056 on the buck.

Meanwhile, crude oil slipped 24 cents to $69 a barrel ahead of weekly inventory data due out at 10:30. Gold gained $11.30 to $935.60 an ounce.