Reform Bill Pushes Financials Higher 06-25-2010

Cusick’s Corner
The economic data that came out today was once again mixed and the market traded sideways for much of the day. The Financials led the market – there was a feeling of relief that the Financial Reform Bill process might be over and we can move on to other issues. Market participants will continue to focus on consumers, retailers and the housing market. Personal Income and Spending will be released Monday morning at 8:30am ET -- so watch the pre-market futures. Kids are out of school, but school is in session tomorrow for optionsXpress customers in Jersey City. optionsXpress is on the road again and will present a free one-day workshop in Jersey City, NJ on Saturday. Customers in the area who would like to attend tomorrow’s workshop should log into their optionsXpress account and click on the Educate tab > Events to register (or sign up a guest) and get the event details. Have a good weekend.

The major averages battled back from early losses and finished the week in quiet fashion Friday. The stage was set for weakness at the open after the latest GDP report showed the economy growing at a 2.7 percent annual rate in the first quarter, which was less than the 3 percent growth that economists had expected. The Dow Jones Industrial Average slipped on the data, but then found some support from the latest University of Michigan Consumer Sentiment Index, which rose to two-year highs of 76 in late June and better than the 75.5 that economists had expected. From there, action slowed to a crawl and, at the closing bell, the Dow Jones Industrial Average was down 9 points. The NASDAQ added 6.

Bullish Flow
Sunoco (SUN) shares rallied along with the price of crude oil Friday. Crude oil finished the day up $2.56 to $79.07 and SUN, a Philly-based oil and gas refiner, rallied $1.71 to $36.24. Options volume hit 2.5X the average daily, with about 7,000 calls and 825 puts traded. The action was focused on July 36 calls, with 4645 changing hands. In addition, with 86 percent trading at the asking price and only 2,002 of existing open interest in the contact, it appears that call buyers were taking positions and looking for the rally to continue through the July expiration, or three weeks from today.

Bullish order flow was also seen in Saks (SKS), Noble Corp (NE), and Bed, Bath and Beyond (BBBY).

Bearish Flow
Trina Solar (TSL) put options have been busy for two days. On Thursday, the focus was on September 17.5 and January 15 puts. While on Friday, shares added 72 cents to $18.23 and options volume rose to 3.5X the average daily, with 14,000 puts and 2,200 calls traded on the session. This time, September 7.5 and September 10 puts were the most actives, with 10110 and 3165 traded respectively. In addition, with about two-thirds of the volume trading at Ask and volume exceeding open interest in both contracts, looks like put buyers were initiating trades and bracing for volatility in TSL shares from now through September. No news on the stock to explain the action.

Bearish flow also picked up in NetGear (NTGR), Tyson (TSN), and Humana (HUM).

Index Trading
Quiet action continues in the index market, as many institutions are probably reluctant to pay for portfolio protection heading into the seasonally slow summer months. About 300,000 calls and 425,000 puts traded on the S&P 500 Index and other cash indexes, which is 63 percent the recent average daily. The top trades of the day were calls on the CBOE Volatility Index (.VIX). A block of 12,485 July 40 calls traded on the $1.20 bid. Another 10,000 July 35 calls on the $1.80 bid. Some investors are possibly selling and liquidating positions in VIX calls, as market volatility subsides a bit. The CBOE Volatility Index (.VIX) hit a low of 28.07 and after trading above 30 early Friday, finished the day down 1.14 to 28.60.

ETF Trading
While VIX is easing and investors seem to be losing interest in index puts, the top trades in the exchange-traded funds seem to reflect a decidedly different view. The action was in the S&P 500 Depositary Receipts (SPY), which finished the day up 45 cents to $107.87. Just before 1:00 pm ET, a block of 40000 December 95 puts traded at $4.32 and a block of 40,000 December 80 puts at $1.89. This spread, at $2.43, appears to be an institutional buyer setting up a portfolio hedge. Another noteworthy spread surfaced in the December 100 – 85 puts, which also seems to be buyer-driven, paying $3.09, 32000X.