Star Scientific (CIGX) is down $1.14 to $1.86 and options on the stock are busy today after a court ruled against the company in a patent dispute. Shares are reeling and today’s options volume of 40,000 calls and 32,000 puts is 9X the average daily for the name. The top trade is a Sep 1.5 – 2.5 put spread apparently sold at 70 cents, 3824X on ISE. It’s possibly a roll down in strikes. 15,540 Sep 2.5 puts now traded against 7,468 in open interest. The contract is 25.6 percent ITM and expires in 21 days. Sep 1.5 puts, Sep 3 calls, and Sep 3 puts on CIGX are seeing active trading as well. Implied volatility jumped 26 percent and remains elevated at 163. Order flow seems to reflect expectations for large price swings in shares in the weeks ahead.

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

GE adds 20 cents to $15.65 and a bullish ratio risk-reversal trades on the stock after one strategist sold 22,500 Jan 11 puts at 39 cents to buy 15,000 Jan 19 calls at 23 cents. The position looks like a new one and was tied to 435K shares at $15.63. GE is one of thirty Dow stocks holding gains for the day. On the week, shares are up 3.6 percent. Still, GE is down 18.6 percent over the past five weeks (from $19.16 on 7/21). The combo might be a play on the stock recovering those losses through Jan 2012.

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

SPDR Homebuilder Fund (XHB) adds 23 cents to $14.12 and a Sep 14 straddle is sold on the ETF at $1.27, 13000X. It might offset a position opened on 8/12 when the same straddle traded at $1.59, 9464X and $1.54, 3100X. Shares are not much changed since that time and the position is being closed at a loss due to slippage and time decay.

VIX hit a morning high of 43.84, but has come down sharply after Federal Reserve Chairman Ben Bernanke said the FOMC will meet for two days instead of one at the September meeting to discuss policy options. Although the S&P 500 is off 7.7 points on the day, VIX is down 1.80 to 37.96 and 13.4 percent off session highs now that the event risk has passed. Action is brisk in the pit, with 107,000 puts and 51,000 calls traded in VIX so far. Sep 27.5, Feb 17, Jan 17 and Nov 22.5 puts are among the most actives.