Banks As Realtors 06-22-2010

Cusick’s Corner
Existing Home sales data came in worse than expected at 5.66 million units, which pulled down the market early but after review of the data, the market clawed back with the major indices hovering around breakeven. This recent data created two camps, one believes that the number of buyers for these properties is now dropping due to the end of the tax credit, and the other camp believes that the banks that are processing these sales (most of which are foreclosures or short sales) are just taking longer to process, which could have hurt May but could potentially help June. This debate on of the health of the Housing sector will continue with the New Home sales report tomorrow. One other sector that needs to be watched, as mentioned last week, is Retail. Retailers, XRT, were beat up yesterday and this could be signaling a struggling consumer which could impact the highly anticipated GDP numbers at the end of this week. It is worth putting these consumer discretionary segments on your radar screen to help you keep a pulse on this current rally. See you After Hours.

Stocks are trading mixed in a relatively slow day of trading Tuesday. The major averages saw modest gains in early action and heading into a report on Existing Home Sales, released at 10:00 ET. The data showed sales falling to an annual rate of 5.66 million in May, down from 5.79 million in April and much worse than the 6.10 million that economists had predicted. The Dow Jones Industrial Average wavered and fell into the red on the news. From there, trading has been choppy and uninspired. The Dow is up 10 points and the NASDAQ 12 at midday. The CBOE Volatility Index (.VIX) slipped .23 to 24.65. Overall options volume is on the light side, with about 3 million calls and 2.8 million puts traded at 12:30 ET.

Bullish
Bed, Bath and Beyond (BBBY) is beginning to see increasing options action ahead of its earnings results, Wednesday after market. 5,660 calls and 1,910 puts traded so far. Most of the action has been in smaller sizes. However, the top trades look like a bullish play, where an investor bought 1,000 July 42 calls and sold 1,000 July 45 calls, creating a spread at a 95-cent debit. It might in anticipation of a bounce in BBBY shares, which have suffered a one-week 11 percent drop ahead of the results.

OfficeMax (OMX) shares hit a high of $16.76 in morning trading and options volume is 7.5X the recent average daily. 7,190 calls and just 265 puts traded on the retailer so far. Players are focused on July 17.5 calls and July 15 calls, which have traded 3232X and 2370X, respectively. The action comes amid unsubstantiated takeover speculation. However, after the initial spike higher, shares gave up the gains and are now flat at $15.71.

Bearish
Frontier Communications (FTR), a Stamford, CT telecommunications company, is off 8 cents to $7.78 and massive put spreads traded in the name Tuesday morning. The activity appears driven by the same investor. 20,000 July 7.5 – 5 put spreads traded at 20 cents. Another 20,000 August 7.5 – 5 put spreads traded at 40 cents. Looking at the bids and offers suggests that these spreads were being bought. If so, it is bearish trading or possibly a hedge in anticipation of possibly weakness in FTR shares in the weeks ahead.

Carnival Cruise (CCL) shares sank 99 cents to $33.86 after the cruise ship operator reporter better-than-expected earnings, but guided estimates lower for the third quarter. Shares are down and options volume is running 6.5X the recent average daily, with 11,000 calls and 9,580 puts traded. July 35 puts are the most actives and some players might be liquidating positions, as the contract also saw brisk trading the day before the results.

Unusual Volume Movers
Patriot Coal (PCX) options volume is running 2X the usual, with 13,000 contracts traded and call volume accounting for about 68 percent of the activity.

PPL options activity is running 20X the usual, with 12,000 contracts traded and put volume representing 92 percent of the volume.
IShares Hong Kong Fund (EWH) options volume is running 2.5X the usual, with 10,000 traded and put volume representing 99 percent of the activity.

Unusual volume is also being seen in Range Resources (RRC), LEAP Wireless (LEAP), and KBW Regional Banking ETF (KRE).

Implied Volatility Movers
Adobe (ADBE) implied volatility is climbing ahead of earnings, due out after the closing bell today. Shares are up a dime to $33.23 and, in options trading, 7,500 puts and 5890 calls have changed hands ahead of the news. The action includes 4186 July 33 puts, which appears driven by put buyers. Meanwhile, implied volatility rose 6 percent to 35.5.