Trading's a Grind -- Waiting on Unemployment Number

Cusick’s Corner
There’s not much more to say about today’s action that hasn’t already been said this week – it’s a GRIND! Pay attention to the Claims data due out before the open at 8:30am ET. It’s worth taking a look at the key support and resistance levels going into the numbers tomorrow and Friday. For the S&P 500 cash, watch Resistance at 1130 and Support at 1122, to see if there are some early entrants or exits in front of the all important unemployment number. See you Midday.

Trading was quiet and stock market averages finished with modest gains on a slow news day Wednesday. The economy was in focus early after ADP reported that the US economy added 42,000 private sector jobs in July; which isn’t great news, but it was better than the 19,000 in June and also better than the 25,000 increase that economists had predicted. A separate report released at 10:00 ET showed the ISM Services Index improving to 54.3 in July, from 53.8 in June and ahead of economist estimates of 53.0. The better-than-expected economic data seemed to help keep a floor under the market on an otherwise slow news day. But at the end of the day, not much had changed. The Dow Jones Industrial Average, which lost 38 points Tuesday, finished with a 44-point gain. The tech-heavy NASDAQ added 20.

Bullish Flow
LEAP Wireless (LEAP) shares had a rough day, falling 14.4 percent to $9.92 after the company posted a wider-than-expected quarterly loss of 24 cents per share. Shares sank, but the options order flow was interesting, as call buyers seemed to dominate the action. About 27,000 contracts traded, which is 12X the norm and almost 3X the number of puts that changed hands. The top trade was block of 2,829 October 14 calls at the 12-cent Ask price. 4,278 contracts traded. August 11, January 11, January 12.5, and September 12 calls saw brisk trading as well.

Bullish order flow was also seen in Motorola (MOT), Hartford (HIG), and Allstate (ALL).

Bearish Flow
Genzyme (GENZ) shares lost 79 cents to $69.41 and options remained actively traded Wednesday, as investors await the next developments in Sanofi-Aventis’ bid for the biotech. Genzyme shares are up 28 percent since talk of the possible merger surfaced on July 22. Another 45,000 calls and 31,000 puts traded in the name Wednesday. The top trades of the day surfaced in the morning hours, when one investor apparently bought 5,000 October 60 puts at $2.32 and sold 5,000 October 50 puts at 22 cents. The spread, at a $2.10 net debit, looks like an opening trade and might be a hedge should the recent merger talks between the two companies fall apart.

Bearish flow also picked up in Virgin Media (VMED), ASML, and Becton, Dickinson (BDX).

Index Trading
CBOE Volatility Index (.VIX) lost .41 to 22.22 on another day of quiet trading for the US equity market. The S&P 500 Index (.SPX) traded in a 9.5-point range and finished up 6.8 points. In options action, a noteworthy trade in the VIX was a block of 49,000 September 45 calls that traded at 50 cents when the bid-ask spread was 50 to 55 cents. The action looks like a new position, as open interest is less than 20,000. If so, this strategist is possibly selling a large block of VIX calls on the view that volatility will remain low through the September expiration. It’s a risky bet because, should VIX spike higher, the strategist could be on the hook to pay the difference, in cash, between the actual value of the VIX minus the 45 strike.

ETF Trading
Utilities Select Sector Fund (XLU) saw increasing options activity Wednesday. The fund holds all of the utility names from the S&P 500 and finished the day up 13 cents to $30.98. A large spread trader surfaced in morning trading, buying 11,200 September 30 puts at 54 cents and selling 11,200 September 28 puts at 13 cents. The spread, at a 41-cent net debit, represents a bearish play. It offers a max pay-off if XLU shares fall to $28, or 9.6 percent, by the September options expiration.