Consolidation is the Name of the Game 09-23-2010

Cusick's Corner
Consolidation is the name of the game at this juncture. The market into the Midday continues to stay in a range after an explosive open off the overnight lows. This is a product of uncertainty and decoupling of some sectors, like the Dollar and Gold. The market is now stalling at resistance, SPY 114, so see if the shorts garner any push this afternoon and start to challenge weak longs that rushed into the market for fear of missing the upside. See you After Hours.

Major averages are holding modest gains following a round of mixed economic news. Jobs were back in focus Thursday morning after the Labor Department reported that weekly claims increased by 12,000 to 465,000 in the period ended September 18. Economists were looking for a decline of 3,000. The day's other data released at 10:00 ET was a bit better. According to one report, existing home sales increased to an annual rate of 4.13 million in August, up from 3.84 million in July and better than the 4.10 million predicted by economists. Separate data showed the list of leading economic indicators up .3 percent in August, up from .1 percent two months ago and also better than the .1 percent that economists had predicted. Meanwhile, a 4.7 percent post-earnings gain in Bed, Bath and Beyond (BBBY) is helping the NASDAQ and Red Hat (RHT) rallied 12.5 percent on earnings as well. Through midday, the Dow Jones Industrial Average is up a few points and the NASDAQ added 15. The CBOE Volatility Index (.VIX) is up .20 to 22.71. Options volume is a bit lighter than in recent days, with about 3.5 million calls and 3.1 million puts traded by 11:30 ET.

Bullish
Large blocks of call options traded on Microsoft (MSFT) Wednesday. Shares are down 20 cents to $24.42 and one investor buys 42,000 October 25 calls at 38 cents and sells 42,000 January 25 calls at $1.18. This reverse calendar spread, at an 80-cent net credit, appears to be a bullish short-term play on the software maker. However, since open interest is sufficient to cover in both contracts, one or both legs of the spread might be closing. If you're interested in finding out, check the open interest tomorrow morning. Today, the October 25 calls have 132,375 contracts of open interest and the January 25 calls and 103,208 contracts.

What a difference a day makes for Computer Associates (CA). As noted in yesterday's closing wrap, the software maker saw heavy put buying in Wednesday session. Sentiment seems to have shifted today, however, as shares are up 14 cents to $20.79 and options volume is 4X the average daily, driven by call buying. The long-term January 2012 calls at the 25 strike are the most actives. 8,360 traded at the ask-side of the bid-ask spread. February 22.5 calls are seeing heavy trading as well.

Bearish
Hertz (HTZ) is off 20 cents to $10.67 after Avis (CAR) revised its offer for Dollar Thrifty (DTG) to about $55 per share. The new bid beats Hertz's latest $50 offer and the ongoing bidding war for DTG seems to be weighing on Hertz shares Wednesday. Meanwhile, in options trading, a noteworthy trade in HTZ is a seller of 17,000 December 12.5 calls at 40 cents per contract. This investor is likely liquidating a bullish position on the day's news.

SPDR Gold Trust (GLD) shares are up 31 cents to $126.51 after gold gained $4 to $1294.50 an ounce Thursday. In the options market, one strategist appears to be bracing for volatility in the metal and apparently bought the December 115 – 100 put spread on the GLD at 80 cents. That is, they bought 10,000 of the December 115 puts at 98 cents and sold 10,000 December 100 puts at 18 cents, which is a bearish spread with a max pay-off if shares fall to $100 or less by the December expiration.

Unusual Volume Movers
Petrobras (PBR) options volume is running 2X the usual, with 101,000 contracts traded and call volume accounting for about 52 percent of the activity.

Netflix (NFLX) options activity is running 2X the usual, with 94,000 contracts traded and call volume representing 57 percent of the volume.
Alcoa (AA) options volume is 2.5X the typical levels, with 72,000 contracts traded and call volume accounting for 69 percent of the activity.

Increasing volume is also being seen in Apollo Group (APOL), Corinthian Colleges (COCO), and Career Education (CECO).

Implied Volatility Movers
Corinthian Colleges (COCO) implied volatility is moving higher, as the Senate begins hearings next week related to new regulation for for-profit companies like COCO, Devry (DV), Career Education (CECO), and Apollo (APOL). Corinthian Colleges shares are up 83 cents to $7 and options volume is 3X the normal ahead of the decision. More than 16,000 calls and 500 puts traded. Implied volatility is up nearly 20 percent to 93.