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Solid gains across Europe’s equity markets set a positive tone for trading on Wall Street Wednesday. Stock benchmarks were higher across the Euro zone after Greek parliament approved austerity measures designed to help the deeply indebted country avoid default.  The euro was also higher against the dollar and the Dow Jones Industrial Average rallied early to extend this week’s 254-point two-day rally.  Pending Home Sales numbers came into focus at 10:00 a.m. eastern time.  The report showed a surprise 8 percent increase for May.  Economists were looking for a modest decline.  BofA (BAC) is the leader in the Dow Jones Industrial Average after the bank announced a settlement with mortgage investors.  CBOE Volatility Index (.VIX) is down 1.53 to 17.64.  Trading in the options market was active yesterday, with 6.7 million calls and 6.8 million puts.

The markets focused on Greece with the passage of the parliamentary vote on the medium-term fiscal strategy (MTFS) and the legislative changes needed to implement the program.  The euro (along with market sentiment) rebounded on the news as immediate Greek default fears mitigate, leading to a decline in the fiscal risk premium.  Commodity prices lead by oil and copper surged higher pushing up toward resistance levels.

E Commerce China Dangdang (DANG) moved higher after the company announced management changes and a streamlined management structure with separate business units.  Shares were up and options volume included 10,000 DANG calls and 1,460 DANG puts. The top trade was a 2067-contract block of DANG July 14 calls at 50 cents on ISE when the market was 45 to 50 cents. It appears to be a buyer opening a position.

In unusually high trading volume, Visa and Mastcard (MA) surged following a memo from the Fed that suggests raising and capping swipe fees to 21 cents from a feared 16 cents cap.  Option volume is in; both names has spiked to 5x the daily average with about 6 calls for trading for every put.  Interchange or “swipe” fees are what banks charge merchants every time a customer uses plastic to pay for a purchase; the consumer doesn’t pay them directly.  The Fed’s rules, which originate from the 2010 Dodd-Frank financial-overhaul law, only address swipe fees for debit cards.

NASDAQ OMX Group (NDAQ) added 92 cents to $24.93 and was rallying beyond its exponential moving average yesterday.  Shares are nothing fresh session highs and Sep 29 calls are actively traded.  3,141 contracts so far, mostly in smaller lots on the ISE.  Sentiment data indicate that customers are buying to open new positions.  The Sep 29 calls on NDAQ are 16.3 percent OTM with a delta of .15.  Open interest is 1,048 contracts.

Stocks are broadly higher, as investors shrugged off the day’s economic data and focused on stock news instead. A report released early showed personal incomes up .3 percent and spending unchanged in May. Economists were looking for increases of .4 percent and .1 percent, respectively. Microsoft (MSFT) is traded higher by close to 4.0 percent and the Dow’s best gainer after a court struck down a law that banned certain video games. Microsoft had been opposed to the regulation. Meanwhile, BofA (BAC), the second best gainer in the industrial average, is up 3.3 percent after Rochdale Securities LLC analyst Richard Bove said shares are undervalued. In all, 28 components of the Dow Jones Industrials were higher yesterday and the average was up 125 points. The tech-heavy NASDAQ gained 38. CBOE Volatility Index (.VIX) gave back .73 to 20.37 amid light volume in the options market.

Implied volatility Mover Lorillard (LO) hit a low of $108.99 on news a Supreme Court ruled against tobacco companies in an appeal in Louisiana.  However, shares have battled back and ended higher.  Meanwhile, 35,000 puts and 14,000 calls traded in Lorillard Monday. Sep 90 puts, which are 18.4 percent OTM, are the most actives.  5,865 traded. A lot of action is also in front-month Jul 100, 105, and 110 puts and might be seeing some unwinding trades, as implied volatility is down 35 percent to 32 now that the event risk has passed.

The technology sectors were buoyed by EBAU.  32,000 calls and 9,810 puts traded in EBAY.  Shares are up and Aug 30 calls are the most actives. 11,640 traded against 1,165 in open interest.  Oct 27 and July 29 calls are the next most actives.  Shares have not performed well lately and are down 15.1 percent since 5/10.  Yesterday’s flow seems to reflect some expectations for a rebound in the weeks ahead.  Earnings are slated for July 20 (after market).

Eastman Kodak (EK) was under pressure as the EK Aug 2.5 – 3 bearish risk-reversal trades at 14 cents, 4090X on ISE.  Sentiment data indicate that the puts were bought-to-open by a customer. The July 2.5 – 4 risk-reversal is seeing interest as well.  Some shareholders might be initiating collars ahead of decision on a patent dispute with RIMM and AAPL.  The ITC recently postponed the decision until June 30.  Implied volatility in EK did not change much yesterday, but elevated at 117 ahead of the news.

Investors continue to keep an eye on Greek debt issues.  The European Commission confirmed Monday it is directly involved in talks between national authorities and banks on getting private-sector involvement for a new bailout for Greece.  Greek parliament on new austerity measures on Wednesday. Late last week, members from the ruling PASOK party already started to dissent, putting the entire agreement with the IMF/ECB on its new loan package at risk.

Equity markets in the US remained under pressure as investors began to worry about second quarter earnings.  Positive news in the form of better manufacturing data, failed to boost investors sentiment.  Energy stocks continued to pressure the market as gasoline and Brent prices continued to move lower.

GDP grew at an annual rate of 1.9% in the first quarter of 2011, according to the Commerce Department. That compares with a 1.8% growth estimate the government reported May 26, but is still down from the 3.1% GDP rise seen in the 4th quarter of 2010.  Economists surveyed had forecasted first-quarter GDP would be revised up to a 2% growth rate.

Durable goods orders rose 1.9% $195.57 billion, according to the Commerce Department. Capital spending by businesses also grew strongly. Economists surveyed had predicted a 1.6% increase in orders last month.  The bigger-than-expected gain in May followed a big, 2.7% drop during April that had drawn concern about manufacturing.

Transportation equipment orders were responsible for much of the overall gain in durables. Airplane orders rose sharply, and orders for cars and parts resumed rising in the wake of the Japan earthquake, which led to supply-chain disruptions that hurt the U.S. auto sector.  Excluding transportation, durable goods orders last month rose 0.6%, following a 0.4% decline in April.  Orders for defense capital goods increased by 3.9% in May. Capital goods orders rose 5.6%. Non-defense capital goods orders increased 5.8%.

The Energy stocks continued to move lower as crude and gasoline prices continued to slide after Thursday’s announcement by the IEA that the petroleum reserves would be released.  Also, in a surprise move, the Obama administration announced that it would release 30 million barrels of oil from its strategic petroleum reserves to offset the supply disruption caused by unrest in the Middle East.  The release is part of a plan by the International Energy Agency to draw 60 million barrels of oil from emergency stocks to address the supply shortfall from Libya.

Big Prints in Williams Companies (WMB) after one strategist bought 15,000 July 23 puts at 11 cents and bought 28,000 Aug 35 calls at 7 cents. The put purchase appears to be a new position. The calls might close, as open interest is 59,002 contracts and currently the second largest position in the natural gas producer.   This is on the back of WMB’s bid for Southern Union Co.   Shares climbed 16% after Energy Transfer Equity LP   signaled it would continue its effort to acquire the pipeline operator, competing against Williams Cos.

The Volatility Index (.VIX) is up 1.77 to 21.06 and has rallied 35.3 percent so far in June, but trading in the VIX pit is relatively quiet. 68,000 puts and 56,000 calls on the volatility index so far. In addition, 38 percent of the volume is due to one trade after a 47000-contract block of VIX Aug 18 puts traded on the 86-cent bid.

Stock market averages edged lower late in the trading day yesterday, as investors took profits after a solid rebound from support levels. After several days of gains, the tone of trading had a wait-and-see feel every past the Federal Reserve’s post-meeting commentary. There were no economic releases of significance and the stock news was mixed. While FedEx (FDX) rallied on better-than-expected earnings, Adobe (ADBE) saw a 6 percent post-earnings slump. The Fed lowered its economic growth forecast, but failed to offer any clues regarding future stimulus. CBOE Volatility Index (.VIX) moved down .44 to 18.42 now that the event risk has passed.

In updated forecasts released after the meeting, Fed officials lowered their growth forecasts and predicted core inflation would remain higher than previously thought. The economy is now expected to expand at a rate of around 2.7% to 2.9% this year and 3.3% to 3.7% in 2012. That is below estimates given after the last meeting in April for growth of 3.1% to 3.3% in 2011 and 3.5% to 4.2% next year.

The 2011 projection for underlying inflation was raised to between 1.5% and 1.8% from April’s forecast of 1.3% to 1.6%, with core prices expected to ease to 1.4% to 2.0% next year instead of 1.3% to 1.8%. The unemployment rate is expected to decline to 8.6% to 8.9% in 2011 and 7.8% to 8.2% next year, versus previous expectations for a drop to 8.4% to 8.7% and then 7.6% to 7.9% in 2012.

The financial sector saw some positive buying as BofA (BAC) Jan13 12.5 calls were seeing interest for a second day. Open interest in the contract increased by 19,025 to 329,749 after 19,710 traded Tuesday (94 percent Ask). Wednesday, an investor bought a 10,000-contract block at $1.28 each. The position is tied to 440K shares at $10.86. Volume is now 29,178. Jan 12.5 calls are seeing a second day of interest as well (see 6/21 color). 20,132 contracts traded so far. 12.5 calls on BAC are 15 percent out-of-the-money. Shares are down 13.7 percent since May 3, when the stock closed at $12.60.

In the energy space, trading was heavy in Cheniere Energy (LNG) call options. Shares saw a spike earlier today, to $9.24, on reports of a 20-year contract win with India’s state gas network operator, GAIL. 22,000 calls and 1,900 puts now traded in LNG. July 8 calls, which are 60 cents ITM, are the most active. 7,505 traded. July 9 and 10 call options are seeing brisk trading as well.

Although the benchmark volatility index declined post the Greek no-confidence vote which passed Tuesday, and yesterday’s FOMC meeting, the VIX remained above support of the 50-day moving average near 17.34.  The last 6 weeks have displayed an upward bias toward implied volatility and until the index breaks through 15, it will remain upward sloping.

Equities in the US were broadly higher on a relatively slow news day Monday. With no earnings of broad market significance and no economic data to guide the action, stock market averages drifted higher at the open and trading has been relatively uneventful from that point forward. The euro is steady against the dollar after European finance ministers set a two-week deadline for Greece to implement stricter austerity measures to get more loans. Wal-mart (WMT) is also among the Dow’s winners after the retailer won a discrimination lawsuit, as the Supreme Court said that the suit could not go toward class action. Crude oil has battled back from early weakness and is up 23 cents to $96.23. Gold gained $3.2 to $1542.30 an ounce. Meanwhile, the Dow Jones Industrial Average was up 75 points and the tech-heavy NASDAQ has added 15. CBOE Volatility Index (.VIX) gave up 1.52 to 20.33.

Financials were one of the lagers with the SPDR Financials (XLF) loses 1 cents to $14.85 after Citi analysts cut price targets on GS, MS, and BAC, while lowering EPS estimates on JPM. Meanwhile, in options trading, a 29000-contract block of XLF Jul 14 puts trades at 14 cents on ISE, where sentiment data indicate a customer bought-to-open. 44,570 now traded. Jul 15 puts and calls on the financial ETF are busy as well. One player bought the straddle at 76 cents, 10000X. The position was tied to 50K shares at $14.90. Looks like it traded more than once.

IBM was higher and one of twenty-six Dow stocks in positive territory Monday. 32,000 puts and 6,800 calls traded on the computer maker. A large percentage of the put volume is due to one spread trade, in which the investor sold 11,400 July 150 puts at 37 cents and bought 10,000 August 150 puts at $1.55. The spread might be a roll of a bearish position and/or a bet that shares will hold above $150 through the July expiration (25 days) and then fall through the Aug expiry (60 days). The company is due to release earnings around July 18 (unconfirmed), which would be the Monday after the July contacts come off the board.

The US will release housing data along with employment information during the week, but most will focus on the FOMC interest rate decision.  The Fed likely to remain on hold and but more importantly to signal “exceptional low levels for the federal funds rate for an extended period”, with limited changes from the previous statement.  Overall, the statement and press conference are also likely to be interesting given the Fed’s current challenges due to the recent deterioration in the macro data.

Ben Bernanke will probably suggest that the recent soft data is temporary in nature and is likely to reverse course later on in second half of 2011. The press conference is also likely to be watched to for comments in regards to QE3.

Equity markets experience a mild relief rally, but continued to remain on the defensive, after another week of stock losses. The VIX volatility index, came off the highs reached on Thursday, but continued to remain elevated above the 21 level. Crude oil prices continued to slide, pushing through resistance early in the trading session moving below the 94.65 level.

Comments on Friday from the Merkel and Sarkozy, endorsing a Vienna style rollover of Greek debt prompted a relief rally in the equity markets.  The combination of weaker than expected manufacturing data during the week (Philly Fed and NY Fed surveys), and renewed fears over a Greek debt default generated another week of equity losses. 

In a statement, spokesman George Petalotis said the government had appointed Evangelos Venizelos as finance minister, replacing George Papaconstantinou.  Mr. Papaconstantinou, seen as the architect of those economic reforms, was appointed as environment minister and remains within the government’s inner cabinet.

In economic news on Friday, the leading index increased 0.8% in May, after a revised 0.4% drop in April, according to the Conference Board. Economists surveyed had expected a smaller 0.3% gain in the May index.  This was offset by a slightly weaker than expected consumer sentiment number.  The increase in Leading Indicators comes on the back of a worse than expected release last month, and the first decline of the index in over a year.

June consumer sentiment index by Reuters/University of Michigan declined to 71.8, from 74.3 in May. It was expected to come in at 73.8. The June current conditions index hit 79.6, from 81.9, and the expectations index was 66.8, from 69.5. On the inflation front, consumer’s one year inflation forecast was 4.0%, after May’s 4.1%, while the five year outlook came in at 3%, from 2.9%.

Parts of the technology sector were hammered after Research In Motion (RIMM) post better-than-expected first quarter EPS numbers, but fell short in revenues below the Street’s estimates. The company also slashed its outlook for the second quarter and the full year. It was the subject of multiple broker downgrades this today. Options were heavily traded. 99,000 calls and 22,000 puts so by 10 am. The top trade is a Jan 30 – 35 put spread sold at $3.05, 29000X and probably rolls a position down in strikes now that the 35s are deep ITM. Implied vols were down 22 percent to 50.

Apple (AAPL) traded lower down 7.1 percent month-to-date. Shares tested a previous support level around $320 and, at these levels, they are now at the worse  of 2011. Meanwhile, in options action, Jun 325 calls are today’s most actively traded equity options contract. 40,777 traded against 12,145 in open interest. The contract is fell more than $2 OTM into the expiration. Premium sellers are active in the contract, probably betting that the stock won’t recapture $325 before the June contracts expire.

Stocks are broadly lower on disappointing economic data and worries about the ongoing European Debt Crisis. The euro was slammed for a 1.8 percent loss against the buck after protestors clashed with police in Athens. The violence is raising concerns that the debt problems in Greece are going to escalate out of control. Meanwhile, US economic news included another round of disappointing data. The NY Empire State Index fell to -7.8 last month, from 11.9 in April. Economists were expecting an increase to 14. The Consumer Price Index [CPI] increased by .2 percent, compared to expectations for no change, and Industrial Production rose .1 percent, half as much as expected. The latest NAHB Housing Index was also well below estimates (of 16). The index fell 3 points to 13 and to levels last seen in September.

Crude pushed lower, testing support near support at 95.00 despite better than expected inventory data released by the Department of Energy.  The combination of weak recent economic data along with the recent protests in Greece have taken their tole on energy prices.

Greek Prime Minister George Papandreou said Wednesday he would shuffle his cabinet and demand a vote of confidence in Parliament.  The vote is likely to herald a further bout of intense uncertainty in financial markets already rattled by the disagreements over a new rescue package.

In the US, consumer prices rose 0.2% from April, according to the U.S. Labor Department. Core inflation, which excludes food and energy, rose by a monthly 0.3% in May, the biggest jump since May 2006.  Economists surveyed had forecast a 0.1% rise in overall prices, and a 0.2% gain for core inflation.  The rise in core inflation fly’s in the face of Ben Bernanke’s assumption that inflation is transitory.

The financials were the largest market mover, with Morgan Stanely (MS) moving down to $22.11 and options volume is 3X the average daily, being driven by a Jan 20 – 22.5 (2X1) put ratio spread bought at 33 cents, 15000X. 30,000 Jan 20 puts were bought and the spread might roll a position from ITM puts to OTMs after a four-month 22.2 percent slide in shares of the investment bank.

Of 3647 listed products, 2543, or 70 percent, are trading with 30 day at-the-money Implied Volatilities higher on the day. Among the most liquid products, the largest increases include: SPRD (125.1% IV +42.6), FNSR (95.6% IV +14.2), HRBN (183.6% IV +13.6), RENN (142.9% IV +9.9) and VXX (69.0% IV +8.5). The VIX broke out to the upside closing at a 21.32 the highest level in the past 3 months, and above resistance near the 19.12 level.

Sentiment on Wall Street increased slightly after the US markets completed last week notching up its 6 straight week of declines.  The S&P 500 has fallen 6.8% during this period as worries of a U.S. economic slowdown have weighed on investor sentiment. The Nasdaq Composite has turned negative for the year on after last week’s decline.

The slow pace of employment recovery has been weighing on investor sentiment.  In a recent economic survey economists expect the economy to add about 2.2 million jobs over the next 12 months. That’s down from last month’s forecast of 2.5 million jobs, and marks the first time the forecast has been lowered since October.  On average economists estimated the jobless rate would be 8.2% in June 2012 and 7.9% in December of next year.

Merger Monday also brought deals news which helped boost the market. Timberland soared 42% after VF Corp., the parent of the North Face and Wrangler brands, said it agreed to buy the apparel company for $2 billion. VF shares rose 12%. Transatlantic Holdings rose 13% after agreeing to merge with fellow reinsurer Allied World Assurance in a stock deal valued at $3.2 billion. Allied World eased 1.4%. In addition, Wendy’s/Arby’s Group gained 6.6% after saying it will sell its Arby’s Restaurant Group for $430 million to private-equity firm Roark Capital Group.

Sears Holdings (SHLD) is rallied and options volume was 3.5X the average daily. 7,590 calls and 7,030 puts traded on the retailer. The top trades are part of Jun 70 – Jul 75 put spread, which traded at $1.50, 1928X. The spread appears to be rolling of a position out one month and to OTM from ITM puts. June 70, 72.5 and 75 calls are also actively traded. Implied volatility is up 12 percent to 36.

The decline of the S&P 500 Index for 6 straight weeks has edged the VIX volatility index to the highest levels since the spike seen in March during and post the Japanese natural and nuclear disasters.  The 200-day moving average to the benchmark volatility index has been solid resistance, and traders have made 3 attempts to break above this average near 20, but the market failed to close near this level.  A break would likely target the March highs.

OfficeMax (OMX) implied volatility moved higher amid increasing levels of put activity. July 5 puts, which are 19 percent OTM and expiring in 38 days, are the most actives. The top trade is multi-exchange sweep of 1,315 at 15 cents and an opening buyer, according to ISEE data. 4,100 have now changed hands against 1,302 in open interest. August 5 puts have traded another 400 contracts and implied volatility in OMX is up 11 percent to 64. Downside put buying in the office supplies retailer comes after an impressive four-month 63.8 percent decline in the share price. A new 52-week low of $6.05 was recorded on Friday.

Equity markets in the US continued to slide, moving lower for the 6th straight week as worse than expected economic data has created negative sentiment. The one bright spot of a better than expected US trade balance on Thursday which helped break a streak of 6 straight lower closes for the S&P 500 Index.

On Friday, OPEC warned of a looming supply gap in the second half of 2011. The oil producing group claimed that expected supply/demand balance indicates a tightening market in the latter part of the year. Ministers tempered their comments by highlighting economic uncertainty amid gloomy U.S. economic data and European sovereign-debt concerns.
Implied volatility moved higher, testing the resistance level near 19.20. Today’s jump in the VIX comes amid a broad sell-off on Wall Street with all 30 components of the Dow Jones Industrial Average under water. The euro is down more than 1 percent against the buck and crude oil lost $2.76 to $99.17 per barrel. The VIX July 32.5 and June 20 calls were the most actively-traded index products, with 29,000 and 19,000 traded, respectively. The volatility index is up 21.3 percent month-to-date and some investors seem to be anticipating additional upside.

The technology sector continued to be battered, lead down by companies like Cisco’s (CSCO). Shares were down falling to new 52-week lows. The top options trade in CSCO today is a 10,000 contract block of Sep 14 puts at 45 cents. It was part of a Sep 14 – 15 (2X1) put ratio spread. The strategist collected 8 cents, 5000X, to open a new position that appears to be targeting a move to $14 through the Sep expiration. With more than 32,000 contracts traded, the CSCO Sep 14 was today’s most actively-traded equity options contract.

The market did see some positive momentum. Dr. Pepper Snapple (DPS) showedrelative strength and increased call activity. Shares are up to $40.24 and July 40 calls are the most actives. 7,250 traded (69 percent Ask) against 224 contracts in open interest. The action has been in smaller lots at prices ranging from 95 cents to $1.25 and appears to be buyer-driven. Jul 40 puts, July 45 calls and Aug 45 calls are seeing some interest as well. 8,180 calls and 610 puts traded.

The market did close off its low on Friday after the Federal Reserve said it wants its reviews of bank capital plans to include a deeper look at more institutions as it works to ensure the financial system could withstand a severe economic downturn.  The Fed proposal would require the biggest U.S. banks to develop detailed capital plans and submit them for federal review before making dividend payments or stock repurchases.

The rule is aimed at banks with more than $50 billion in assets; there are about 35 that would be affected, the Fed said. That is much broader than the 19 biggest companies with assets of more than $100 billion that have so far faced the greatest Fed scrutiny.

FOMC Chairman Ben Bernanke painted a sluggish view of the U.S. economy on Tuesday, saying that the economy is  growing more slowly than had previously expected, but forecast improved growth in the second half of 2011. The comments did little to inspire market participants who refocused their attention to the current soft patch in economic data.

The Petroleum markets were in the news, and in a decision that shocked participants and sent oil prices higher, OPEC officials said the group had failed to reach consensus to boost output as expected. Iranian Oil Minister Mohammad Aliabadi, who is also serving as president of the producer’s organization, said the decision was “unwelcome” by some members.

Gulf delegates have been pushing in recent days for an increase of one million to 1.5 million barrels a day. “This is one of the worst meetings we ever had in OPEC,” Saudi Arabian oil minister Ali Naimi told reporters after the meeting had ended. “We were not able to reach an agreement.”

OPEC countries supply about a third of the world’s crude oil. The four countries party to the Gulf Cooperation Council, Saudi Arabia, Kuwait, Qatar and United Arab Emirates, proposed an increase of 1.5 million barrels a day over the current 28.8 million-barrel-a-day production level that does include Iraq.  Oil prices initially climbed but remains well in the recent 97-102 range.

Cabot Oil and Gas (COG) adds $4.67 to $60.58 early in the trading session after Canaccord analysts upgraded the stock to Buy from Hold.
The firm says that Cabot’s 200K acre property in Susquehanna county is the most product gas asset in North America. Shares are up on the bullish commentary and one strategist sold 10,000 Jan 45 puts at $2 to buy buy 5,000 Jan 70 calls at $3.65. The bullish ratio risk-reversal looks opening and is tied to 670K shares at $59.65.

In other Oil news, Exxon Mobil Corp. on Wednesday unveiled two major oil discoveries and a natural-gas find in the deep-water Gulf of
Mexico that combined could contain more than 700 million barrels of recoverable oil and gas resources, a sign that the region’s energy potential is starting to reawaken from its Deepwater Horizon slumber.

Retail outlets were hit hard as Office Depot (ODP) fell to new 52-week lows today. One options trade include a buyer of 7,500 Jan $5 calls at 29 cents each. The position is tied to 400K shares at $3.47. Recent trades also include a multi-exchange sweep of 8,300 July 4.5 calls at the 10-cent asking price.

The VIX continued to grind higher and it is closing in on resistance near the 200-day moving average at 19.00.  The 18.71 closing price is up 3.5% on the day and it is the highest close since March of 2011.

Equity markets were on the defensive on Friday after the release of a weaker than expected employment report prior to the market open. Although many analyst had revised there estimates lower after a soft ADP report on Wednesday, the decline proved to be softer than many expected.
Nonfarm payrolls rose by 54,000 in April as the private sector posted the smallest jobs gain in nearly a year, according to the Labor Department. Payrolls data for the previous two months were revised down by a total 39,000 to show increases of 232,000 jobs in April and 194,000 in March.

The jobless rate, which is obtained from a household survey, unexpectedly rose to 9.1% in May from 9.0% in April. There are almost 13.9 million Americans who would like to work but can’t get a job. Economists surveyed had forecast payrolls would rise by 160,000 and the jobless rate would edge lower to 8.9%.

Friday’s report showed private-sector employers, which account for about 70% of the work force, added 83,000 jobs in May, the smallest gain since June 2010. That compares with increases of 251,000 in April and 219,000 in March. Government employment fell by 29,000, the seventh drop in a row, mainly as a result of declines in the work force of state and local governments, which are struggling to close their budget gaps.

Arch Coal (ACI) puts were very busy for a second straight day. Open interest increased by 31,000 contracts after Thursday’s activity. One trade in the coal producer is a block of 5,600 Jun 34 puts sold and tied to stock, possibly closing out a hedged position in shares. Meanwhile, the June 28 – 31 put spread is apparently sold at $1.65, 7660X and possibly rolls a position down in strikes after a 23.9 percent slide in the share price since March. June 31 puts were active as well. Of the 37,000 options contracts traded, 36,000 is front-month June options, perhaps suggesting that investors expect additional volatility in ACI over the next two weeks.

Dryships (DRYS) on Friday to $4.17 and options are busy today after Goldman Sachs upgraded the stock to Buy from Neutral. 32,000 calls and 8,260 puts traded on the dry bulk shipper. The top trades are part of a three-way spread after 5,000 Sep 3.5 puts traded at 17 cents while the Sep 5 – 6 call spread traded at 12 cents, 5000X. All three legs traded on the ISE, where sentiment data suggest puts were sold to finance the call spread.

28,000 calls and 12,000 puts traded in Lowe’s (LOW), which is 2.5X the average daily options volume for the home improvement retailer. Much of the action is due to one spread trade, after an investor bought 17,000 July 24 calls at an average of 46.2 cents, sold 5,000 July 22 puts at 27 cents, and sold 5,000 July 23 puts at 56 cents. The bullish three-way spread looks opening and comes as the company presents today at a Bernstein Strategic Decisions Conference. The stock is on a six-day losing skid and now off 14.4 percent from the 52-week high set in late-March. Earnings were reported on 5/16.

The VIX attempted to test resistance near the 200-day moving average near 19.15, but failed and retraced down to 17.75, closer to the 50-day
moving average.

Equity markets in the US started strongly but were dragged off the highs of the day after worse than expected economic data. Lackluster housing price data, along with declining manufacturing data, took some of the wind out of investors sails.  The risk on trade looked to be in vogue after positive statements from German with regard to a Greek debt restructuring.

Germany has eased its position for an early rescheduling of Greek bonds in order to facilitate a new package of aid loans for Greece, which has increased risk appetite for market participants.  The relaxing of their position has lead equity indexes higher.  Berlin’s concession that it must lend Greece more money, even without burden-sharing by bondholders in the short term, would help Europe overcome its impasse over Greece’s funding needs before the country runs out capital by mid-July.

Euro-zone officials have acknowledged for weeks that Greece will face a shortfall in financing of around €30 billion a year in 2012 and 2013, even after a €110 billion bailout agreed last year. The agreement on how those gaps should be filled is proving difficult, thanks to growing political opposition in northern Europe to bailouts of profligate countries such as Greece.  Germany has for weeks argued that private investors in Greek bonds should, in some way, bear part of the burden of any new bailout package for Athens. But the European Central Bank staunchly opposes any form of debt restructuring.

In economic news, U.S. home prices fell 4.2% in the first quarter, hitting their lowest levels since mid-2002 after falling 3.6% in the fourth quarter, according to the S&P Case-Shiller home-price indexes.  This month’s report is marked by the confirmation of a double-dip in home prices across much of the nation.  The National Index fell 4.2% over the first quarter alone, and is down 5.1% compared to its year-ago level.

The Conference Board, said its index of consumer confidence declined to 60.8 this month from a revised 66.0 in April, first reported as 65.4.  The May reading was the lowest since November 2010 and was far worse than the 66.4 expected by economists.  Consumer expectations for economic activity over the next six months plunged to 75.2 in May from a revised 83.2 in April, originally reported as 82.6.  The present situation index, a gauge of consumers’ assessment of current economic conditions, fell to 39.3 from a revised 40.2, originally reported as 39.6.

Small cap stocks were in vogue and saw solid options action.  Russell 2000 Small Cap Index (.RUT) saw investors focusing on  the Jun 895 – 905 call spread. It appears that the spread is being sold-to-open at 30 cents, and for the trading session saw more than 40K contracts. The strategist is probably looking for the Russell to hold below 895 through the June expiration, which would represent a 6.55 percent move higher over the next 16 days.

Apple Computer (AAPL) Weekly puts and calls are seeing heavy trading amid optimism for the company’s Worldwide Developer’s conference. Although it is scheduled for Jun 6 – 10 and after the Weekly 6/3 contracts expire, trading is active on speculation about potential product announcements at the event. The list includes a Lion operating system, an advanced mobile OS for iPad, iPhone and iTouch, as well as the company’s upcoming cloud services offering. Shares were up $7.82 to $345.23 and weekly at-the-money 345 calls are the most actives. 26,818 have changed hands. Weekly 340 puts traded 16,100 contracts and the action also included some spread purchases (buying 340s and selling 345s). Implied volatility is up 5 percent to 20 and options action in Apple is likely to remain brisk this week heading into the event.  Overall daily option volume was lower.