Market Jittery 05-19-2010

Cusick’s Corner
This market is chalk full of emotion, starting with the Euro bounce, which should start to help oversold Energies in the face of Germany’s short ban. We also had speculation into the midday that the derivative compromise by Senator Dodd was in jeopardy of being pulled. This news initially took down the market, but then the market retraced (slightly) once traders viewed this as an overreaction to the Financial Reform Bill. While this market has been extremely jittery, we need to be able to step back and access the sentiment, seems to be bearish, and trade accordingly. This action into the After Hours looks to become choppier and potentially start to challenge the downside.

The major averages are back under pressure following a day of weakness in overseas markets and disappointing economic news. The table was set for losses on Wall Street after stocks fell across much of Asia and in Europe. Meanwhile, the day’s domestic economic news showed the Consumer Price Index [CPI] unexpectedly falling .1 percent in April. Economists were expecting an increase of .1 percent. A bit later, separate data showed the number of home mortgages either delinquent or in foreclosure up to 14 percent in the first quarter. Signs of falling prices on the consumer level along with rising numbers of troubled borrowers did little to ease recent concerns about the broader global economic outlook. Consequently, the Dow Jones Industrial Average is down another 110 points. The NASDAQ lost 30. Trading in the options market is active and becoming more defensive, with about 4.8 million calls and 6.9 million puts traded at 12:35 ET.

Bullish
Newmont Mining (NEM) shares are down $2.06 to $54 after gold lost $20 to $1194.30 an ounce. In the options market, a noteworthy spread in Newmont was in the January 2011 calls after an investor apparently bought 3,250 calls at the 80 strike at $1.29 strike while selling 3,250 call options at the 85 strike for 39 cents. This spread, at a net debit of only 90 cents, is an aggressive play because it would require a move up to $80.39 to breakeven at the January expiration. This strategist might expect shares of the miner to benefit from higher gold prices, which rallied to record highs near $1250 an ounce last week.

Call options on the Select Sector Technology Fund (XLK) remain heavily traded. Shares of the fund are down 10 cents to $22.08 and holding up relatively well after Hewlett Packard (HPQ) posted earnings that beat Street estimates. Some investors appear to be looking for some upside in XLK – which holds all of the technology names from the S&P 500. In the options market, 61,000 calls and 1,330 puts traded on the exchange-traded fund through midday. June 24 calls are the most actives. 37,890 contracts traded. Another 21,490 June 22 calls changed hands.

Bearish
Analog Devices (ADI) shares gained $1.13 to $28.73 after the company reported quarterly earnings of 55 cents per share, which beat Street views by a nickel. Revenues also exceeded expectations. Shares rose on the news, but the options order flow seemed somewhat defensive or bearish. June 30 puts were the most actively traded contract. 4,643 traded and 70 percent traded on the asking price. Similar action was seen in May 30 puts, as it appears some investors were buying puts on concerns Wednesday’s gains in ADI shares won’t hold in days/weeks ahead.

Expedia (EXPE) is down 19 cents to $22.51 and options action is picking up in EXPE July 22.5 calls. 8,650 contracts traded and 60 percent hit on the bid-side of the market. Another 1,286 June 27.5 calls changed hands, with 94 percent trading on the bid. The action hints at call selling and possibly trading activity based on the view that the short-term upside is limited for EXPE shares.

Unusual Volume Movers
Zions Bancorp (ZION) options volume is running 2X the usual, with 38,000 contracts traded and put activity representing about 63 percent of the activity.

iShares Japan Fund (EWJ) options activity is running 4X the usual, with 34,000 contracts traded and call volume representing about 87 percent of the volume.

Hecla Mining (HL) options volume is running 3X the usual, with 27,000 traded and put volume representing 56 percent of the activity.

Bristol Myers (BMY), MetLife (MET), and US Oil Fund (USO) also have unusual volume.

Implied Volatility Movers
Implied volatility is moving in SunPower Corp. (SPWRA), as shares of the solar energy company extend a recent slide and fall to new 52-week low. Shares are down 43 cents to $11.17 and have now lost 35 percent in a little over one week. 7,725 calls and 6,610 puts traded in the name through midday Wednesday. Implied volatility is up about 8.5 percent to 75.5, from about 61 before the slide began.