Options traders appear to be setting up for a bullish move on Host Hotels & Resorts Inc. (HST). Traders plowed into 2,416 new call option contracts -- 5.39 times the average volume -- on the stock on Tuesday. And we know that traders were eager to get into this trade because 96% of the trades came in on the ask price.

Host Hotels has been consolidating in what looks like a bullish pennant for the past few months. The stock closed Tuesday at $13.97, down 3.85% during the past month.

Option traders also look like they are preparing for a bearish move on Leucadia National Corp. (LUK). Traders bought 1,504.00 new put option contracts -- 5.88 times the average volume -- on the stock. A full 100% of these trades also came in on the ask price.

The stock closed Tuesday at $22.69, up 5% during the past month.

On Wednesday, Investors pushed call option prices higher in the savings & loan industry and pushed put option prices higher in the electric utilities industry.

Any time the volatility skews above 1.00, it is an indication that calls are more expensive than puts. Typically, when calls are more expensive than puts, it means the demand for calls is greater than the demand for puts because investors believe the stock is going to rise in the future and they want to take advantage of that movement by buying calls.

The opposite is also true. Any time a volatility skews below 1.00, it is an indication that puts are more expensive than calls.

Bullish Volatility Skews

- Hudson City Bancorp, Inc. (HCBK)---part of the Savings & Loans industry---came in at the top with a volatility skew of 1.13. This may come as a surprise as HCBK is down -6.89 percent for the past month.

Despite an increase in the number of bad loans, Hudson City Bancorp Inc. (NASDAQ: HCBK) managed to exceed analysts' second-quarter earnings estimates. The New Jersey-based bank raked in a quarterly profit of $127.9 million, or 26 cents per share, up 16% from the year-ago period. The results topped Wall Street's consensus estimate for a profit of 24 cents per share.

However, HCBK's loan-loss provision surged during the quarter to $32.5 million, compared to $20 million during the first quarter. Net charge-offs rose to $9.6 million, more than doubling. Nonperforming loans escalated to $430.9 million (1.40% of total loans), up from $320.1 million (1.06% of total loans) at the end of the first quarter.

"Hudson City Bancorp (NASDAQ: HCBK) is a fortress of safety with plenty of upside potential," says value investor Nathan Slaughter.

In his Half-Priced Stocks, he explains, "The 140-year old bank is a classic example of the tortoise and hare fable. Its slower, measured approach has paid off handsomely and keptit at arms length from the problems plaguing other banks."

"Hudson City manages a network of 130 bank branches spread throughout affluent regions of New Jersey, New York and Connecticut. At last count, the firm had over $20 billion in deposits and approximately $56 billion in total assets.

"According to an independent study, this tight-knit institution has been rated one of the nation's three strictest mortgage underwriters. So when most other banks relaxed their standards in recent years to attract riskier clientele, Hudson City stuck to its conservative roots and refused to budge.

This post is part of a series featuring bargain stocks that are worth a look now. See more Cheap Stocks.

If you had to judge solely by its year-to-date price action, you would probably never guess that Hudson City Bancorp (NASDAQ: HCBK) is, well, a bank. The shares are currently holding onto a year-to-date gain, and they're thriving for good reason. Paramus, New Jersey-based HCBK is feeling so flush, it recently rejected the opportunity to rake in some of the government's TARP funds.

In a statement accompanying the news, Chairman, CEO, and President Ronald Hermance Jr. explained how Hudson City has endured the financial crisis: "We have never offered subprime mortgages ... or other risky mortgage products. We do not sell any of our loan production to the secondary market. We keep all of our loans in portfolio. As a result, we have not been seriously affected by conditions in the marketplace."

Honestly, Hudson City Bancorp seems to be operating in its own economy independent from the rest of the U.S. Check out some of the figures the bank holding company reported on October 15 in its second-quarter earnings release: profit jumped 64% to hit a record 25 cents per share, one cent higher than analysts expected; through September 30, year-to-date deposits added $2.14 billion to $17.29 billion, while total year-to-date assets rose by $7.35 billion to $51.77 billion; and HCBK reported that it's actually writing more mortgages now than it was last year.

The banking and financial sectors have certainly taken their lumps amid the housing sector's correction, but that doesn't mean there aren't bank stock opportunities out there, and one bank worth a review is Hudson City Bancorp.

Hudson City Bancorp (Nasdaq: HCBK) is a community bank with about 110 branches in the Metropolitan New York area.

Analysts like HCBK's loan growth, ramping fee income, and strong cost control history. Best of all, analysts say Hudson should not be adversely affected by the secondary mortgage market and its incorrect pricing of loans because Hudson holds most of the loans it originates.

Further, margin spreads should increase in 2008, and charge-offs should be minimal. The Reuters FY 2007/FY 2008 EPS consensus estimates for HCBK are $0.59 to $0.82.

The risks? An inversion of the yield curve would hurt HCBK's results; competition is modest.

The First Call mean rating for HCBK is: Buy [13 firms]. Mean 2008 target: $15.50 [high: $18, low: $12].

Stock Analysis: Hudson City Bancorp is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 2 years should be rewarded from HCBK's shares. Sell/Stop Loss if you were to purchase shares in this company: $8.

Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.