Domestic News Continues to Take Back Seat 11-17-2010

Cusick's Corner
The market continues the grind, but we need to see if one side takes charge in the afternoon. I have been watching the SPX and if the bears can break the 1180 mark, they could take control in the short-term. The bulls on the other hand, can get some momentum if they can press the 1185 market, retracing over a third of the pullback. At this stage you really need to monitor your current trades closely. See you After Hours.

Major averages have traded in a narrow range after a day of volatile trading Tuesday. After yesterday's 178-point slide, the Dow Jones Industrial Average opened steady on mixed economic data. A report released before the bell showed Consumer Prices [CPI], a gauge of inflation at the consumer level, up .2 percent in October. Economists were looking for an increase of .3 percent. However, the latest Housing Starts data wasn't very encouraging. It showed a drop of 69,000 to an annual rate of 519,000 in October, which was well below expectations of 600,000. The data didn't move the market much as domestic news continues to take a backseat to worries about rate hikes in China and uncertainty about a bailout of Ireland by the EU. Consequently, the tone of trading remains cautious and the Dow has recovered only 6 points of yesterday's loss. The NASDAQ has added 12. The CBOE Volatility Index (.VIX) is off 1.14 to 21.44. Options volume is a bit slower than during Tuesday's turbulent trading session, with 4.3 million calls and 3.8 million puts traded through 12:15 ET.

Bullish
Ford Motor (F) continues to see heavy trading ahead of GM's highly anticipated Initial Public Offering. According to CNBC, the IPO, which is slated for tomorrow, is likely to price at $33 per share. Some view the signs of strong investor demand for GM shares as a positive for Ford as well. Ford is up 24 cents to $16.75 and 136,000 call options have traded on the automaker through midday. November 17 and 18s are the most actives. On the put side of the chain, 89.000 traded. December 15s and 16s are seeing the most volume.

A noteworthy spread trades in Delta Airlines (DAL) Wednesday morning. Shares, which are up more than 11 percent since the airline reported robust profits on October 20, are down 15 cents to $13 today. Meanwhile, one strategist bought the January – March 17.5 call spread at 22 cents, 10000X. That is, they sold 10,000 of the January 17.5 calls to buy 10,000 March 17.5 calls. The spread at 22 cents is cheap because these options are deep out-of-the-money. Also, it appears to be a roll – i.e. closing out January to open a similar bullish trade in the March 17.5 calls. The strategist might be buying two additional months of time and extending a bullish outlook on DAL.

Bearish
The biggest options trades so far today are in the SPDR 500 Trust (SPY). The so-called “Spyders” or SPY is an exchange-traded fund that holds the same stocks as the S&P 500. SPY can be bought and sold like shares of stock and is up 21 cents to $118.37. In options action, one strategist apparently paid 54 cents for the November 119 – December 115 put spread and traded 47,000X. This also looks like a roll, or closing a position in the November 119 puts, which are in-the-money heading into the expiration and opening a new position in the December out-of-the-money 115 puts. November options expire at the end of the week and this roll is probably a portfolio manager looking to hedge their portfolio an additional month.

MGM sees a substantial premium sale Wednesday morning. Shares are down 31 cents to $12.06 and now down nearly 10 percent over the past week. Meanwhile, in morning options trading, one player sold a block of 31,000 March 20 calls at 21 cents each. This massive premium sale might be a closing position, as open interest is almost 40,000. The investor might have initiated a bullish trade in the deep out-of-the-money March 20s, but is now liquidating the position following the recent weakness in MGM.

Unusual Volume Movers
Human Genome Sciences (HGSI) options volume is running 5X the usual, with 159,000 contracts traded and put volume accounting for 52 percent of the activity, according to data from website WhatsTrading.com.

Boston Scientific (BSX) options activity is running 7.5X the usual, with 75,000 contracts traded and call volume representing 96 percent of the volume.

First Solar (FSLR) options volume is 2X the typical levels, with 51,000 contracts traded and put volume accounting for 53 percent of the activity.

Increasing volume is also being seen in MELA, ADM, and SINA.

Implied Volatility Movers
Human Genome Sciences (HGSI) implied volatility is crashing down the day after an FDA panel delivered a positive verdict on the company's new Benlysta Lupus drug. Shares are trading down 63 cents to $25.25 despite the good news. There is concern that, while the FDA might approve the drug when it makes a final decision on December 9, it will allow treatment for only certain groups of patients. Nevertheless, while shares aren't reacting well, implied volatility is down about 50 percent to 90 now that this event risk has passed.