Yahoo (YHOO) loses 7 cents to $14.32 and a noteworthy trade is a Jan 16 – 20 (1X3) call ratio backspread at 22 cents, 5000X on PHLX. Looks like the strategist sold 5,000 Jan 16 calls at 49 cents to buy 15,000 Jan 20 calls at 9 cents. It might roll or close a position, as open interest is sufficient to cover. This play makes profits if YHOO stays below $16 and all the calls expire worthless. In that case, the strategist keeps the credit. However, profits are also possible if shares see a dramatic move higher because three calls are bought for every one sold. The upside breakeven at expiration is around $22. However, profits are also possible if the stock makes a big move sooner.

*Scanning all single-stocks subject to 2500 contracts minimum call or put volume

Avis (CAR) sees a spike to $11.43 (+.11) and bullish flow is detected in CAR options, with 4,260 calls traded, or 7X the average daily volume. The focus is on Jan 12.5 calls and Oct 11 calls, with 2915 and 2207 traded, respectively, and 93 percent trading at the ask. The relative strength and call buying comes the day after Hertz (HTZ) said it will end its deal to buy Dollar Thrifty (DTG) if it loses a shareholder vote scheduled for today. CAR has also made an offer for DTG, but Dollar Thrifty rejected it on concerns Avis would not be able to close the deal in a timely manner. Instead, Dollar Thrifty has recommended that shareholders approve Hertz’s merger offer.

Big Prints in H-P (HPQ) this morning. Shares are up 1.5 percent to $42.25 and the best gainers in the Dow Jones Industrial Average after the computer maker issued upside 2011 earnings guidance at its analyst day late-Tuesday. In options action, one investor apparently initiated a bullish three-way spread Wednesday morning — selling 13,545 Jan 37 puts at 97 cents to buy the Jan 42 – 48 call spread at $2.17, 13,545X. Looks like an opening play and a bet shares will move towards $48 or beyond by the January expiration.

CBOE Volatility Index (.VIX) is up .43 to 22.97, even as the S&P 500 adds 2.7 points Thursday. Market action has been choppy today and, while the S&P has traded in a 15.7 point range, VIX hit a high of 24.28 and a low of 22.58. VIX is perhaps edging up ahead of event risk later this week including GDP, jobless claims, PMI Thursday and personal income/spending, UofMich Sentiment, construction spending, ISM, and auto/truck sales Friday. Meanwhile, noteworthy recent trades in the VIX Tuesday afternoon include Jan 22.5 – 27.5 (2X1) put ratio spread at 1.30, 15000X and Dec 22.5 – Dec 27.5 (2X1) put ratio spread at 1.45, 17000X. The spreads look like bets that VIX will hold around these levels, or fall to 22.5, through the end of this year and into early 2011. VIX December futures are currently at 28.25. January is 30.

*Scanning all single-stocks subject to 2500 contracts minimum call or put volume

DryShips (DRYS), which rallied around a Morgan Stanley upgrade yesterday (see 9/27 color), is up another 41 cents to $4.88 after winning a $135 million contract for drillship. The contract is “easing financing concerns that have plagued the company for nearly two years,” according to Reuters. DRYS options are seeing brisk trading for a second day. 40,000 calls and 7,870 puts traded so far, or 8X the normal for midday. Oct 4, Oct 5, and Nov 5 calls are the most actives. Meanwhile, implied volatility is up 2 percent to 54, compared to a 52-week high and low of 88 and 42.

*Scanning all single-stocks subject to 2500 contracts minimum call or put volume