Market Drift 12-27-2010

Cusick's Corner
The market is drifting back and forth like the snow. Trading volumes are pretty low today, some traders are still on holiday and the blizzard on the East Coast kept many traders home. The rest of the week may be rather quiet unless there are some major domestic or international headlines. See you After Hours.

Major averages are lower in lackluster trading Monday. The Dow Jones Industrial Average slumped at the open after a three-day break on news China's Central Bank unexpected hiked rates over the weekend. With no economic data or earnings to guide the action on Wall Street, the news from China got some attention and fueled concerns about a slowdown in the fast-growing economy. Stocks opened broadly lower. However, trading has been orderly thus far. The Dow has traded in a 54-point range and is off 35 points. The tech-heavy NASDAQ lost 13.5. The CBOE Volatility Index (.VIX) jumped 1.55 to 18.02. Options volume is light, with 2 million calls and 1.5 million puts traded through 11:00 ET.

Bullish
Goldman Sachs (GS) sees relative strength and increasing call activity Monday. Shares are up $2.14 to $169.74 after the investment bank unveiled a new executive compensation plan designed to limit risk-taking and reward performance. Investors seemed to like the details. Shares are up and 17,000 calls traded in Goldman so far. The top trade is a block of 6,000 January 185 calls at 46 cents each, which might be a liquidating trade. Open interest is 7,185 and the contract is still $15.26 out of the money. Beyond that, most of the action has been in smaller lots. The next biggest trade is a lot of 160 contracts of April 180 calls at the $5.15 asking price. Jan 160, 165, 175 and 185 calls are the most actives.

Rare Earth (REE) jumps $1.42 to $11.58 after PC World.com ran a story noting that Moly Corp (MCP) has resumed operations at a rare earth mine that has been idle since 2002. MCP is up 10 percent and REE is rallying along side. Meanwhile, options volume in Rare Earth included 9,650 calls and 1,650 puts through midday. January 10, 11 and 12.5 calls are the most actives, as some call buyers appear to be taking positions in anticipation of additional upside in miner of rare earth materials.

Bearish
H&R Block (HRB) is under pressure after HSBC pulled its agreement to provide loans tied to future tax refunds. H&R Block shares are off 89 cents to $11.80 and options volume is 2.5X the average daily. 9,340 puts and 8,790 calls traded on the tax preparation company through midday. Not all of the flow is bearish, however. In fact, one noteworthy trade in morning action was a buyer of 4,000 HRB January 12.5 calls at $1.90.

Tesla Motors (TSLA) tanked on increasing put volume Monday. TSLA is down $4.41 to $25.68 after a 180-day lockup period to sell shares after an offering expired. The stock was hit with a barrage of selling and options volume includes 8,880 puts and 4,075 call options. January 25, 26, 27 and even 20 puts were among the day's most actives.

Unusual Volume Movers
Williams Companies (WMB) options volume is running 4.5X the usual, with 105,000 contracts traded and call volume accounting for 100 percent of the activity, according to data from website WhatsTrading.com.

H&R (HRB) options activity is running 2.5X the usual, with 18,000 contracts traded and put volume representing 52 percent of the volume.

Assured Guaranty (AGO) options volume is 3.5X the typical levels, with 15,000 contracts traded and call volume accounting for 99 percent of the activity.

Increasing volume is also being seen in Yingli Energy (YGE), JA Solar (JASO), and American Capital (ACAS).

Implied Volatility Movers
Dryships (DRYS) implied volatility is moving up. Shares are trading down 39 cents to $5.58 after the company announced plans to buy a dozen tankers from a Korean firm over the next three years. The company will also spin off the tanker division. Investors don't seem pleased with the news, as shares are taking a hit. Options are busy as well. 17,000 calls and 13,000 puts traded. Meanwhile, implied volatility jumped 17 percent to 48.