Put Action Has Picked Up 01-31-2011

Cusick's Corner
Egypt should not to be viewed as the main cause of the market's volatility, this event is happening during a time of already increasing volatility. Wheat markets will be the most effected and any potential slowdown happening in this exporting nation will add some short-term bearishness. After any regime shift this market could resume its continued bearishness. Oil will see some potential volatility but the real pressure to the upside in the black gold would only occur if this sentiment slips over to other nations, specifically Saudi Arabia, but that is highly unlikely. I will be keeping an eye on the inventories number and if the violence increases to the point of where shipments through the Suez Canal are curtailed because of escalated violence. Put action has picked up and it may be worth looking into protection. See you After Hours.

Market action is orderly on the last trading day of January 2011. The underlying tone remains cautious after stocks sank Friday on fears about mounting political unrest in Egypt and after economic data released early Monday showed personal spending up .7 percent in December, which was .1 percent better-than-expected. Incomes rose .5 percent and below expectations (of .5 percent). However, after a 178-point slide Friday, the Dow Jones Industrial Average opened steady and saw morning strength after separate data showed the Chicago Purchasing Managers Index, a gauge of regional manufacturing activity, up to 68.6 in January, from 66.8 the month before and much better than the 65 reading that economists had predicted. Meanwhile, a merger was announced after Alpha Natural Resources (ANR) made a bid for rival coal producer Massey Energy (MEE). Exxon Mobile (XOM) gained 1.9 percent and is the second best gainer in the Dow (behind Alcoa) after reporting earnings that topped Street expectations. The industrial average has added 60 points. The tech-heavy NASDAQ gained 18. After closing above 20 for the first time since early December on Friday, the CBOE Volatility Index (.VIX) gave back .64 to 19.40. Options action is much slower than Friday, with 3.6 million calls and 3.5 puts traded through 12:00pm ET.

Bullish Flow
Cisco Systems (CSCO) is seeing some action. Shares are up .9 percent to $21.12 and one of twenty Dow stocks moving higher through midday Monday. Meanwhile, options volume in the networking giant includes 53,000 calls and 49,000 puts. February 22 calls are the most actives. 16,500 have changed hands and, with 68 percent trading at the asking price, it appears that call buyers are dominating the action. February 19 puts are seeing interest as well and implied volatility in CSCO is down 3 percent to 28. The increased options activity might be in anticipation of Cisco's earnings, which are due out next Wednesday, February 9, after market.

NPS Pharmaceuticals (NPS) shares touched a new 52-week high and are up $2.23 to $9.84 following favorable Phase 3 data for Gattex, an intestinal drug. Shares are higher and options volume is 5X the average daily, with 14,000 calls and 3,770 puts traded. May 9 calls, which have traded more than 5,000x, are the most actives. Feb 7.5 calls, May 10 calls and Feb 7.5 puts are seeing active trading as well.

Bearish Flow
Excel Maritime (EXM), a Greek bulk cargo shipping company, is trading down 3 cents to $4.64 and options volume is 5X the average daily, driven by put buying. 4,230 traded, which compares to call volume of 250 contracts. The focus is on the March 4 puts. 3,730 changed hands and 84 percent hit at the asking price, which indicates that buyers are initiating trades and dominating the action. It might be a play on earnings, which are expected around February 23.

The biggest options trades so far today are in the Financials Select Sector ETF (XLF). Shares are up 18 cents to $16.43 and, despite a volatile session Friday, are set to close the month of January with a 2.5 percent gain. Meanwhile, the top trades of the day are block of 50,000 March 15 puts at 16 cents and a separate block of 50,000 April 15 puts at 23 cents. These massive blocks of puts were part of 2X1 put ratio spreads, in which the investor was also selling 25,000 March 16 puts at 38 cents and 25,000 April 16 puts. The spreads might be closing or liquidating trades on diminishing fear about future volatility in the financials.

Unusual Volume
US Oil Fund (USO) options volume is running 2.5X the average daily, with 199,000 contracts traded and call volume accounting for 79 percent of the volume, according to data from WhatsTrading.com.

Massey Energy (MEE) options volume is 3.5X the average daily, with 85,000 contracts traded and call volume representing for 65 percent of the activity.

Alpha Natural Resources (ANR) options volume is running 5.5X the average daily, with 57,000 contracts traded and call volume accounting for 71 percent of the activity.

Increasing options activity is also being seen in JC Penney (JCP), Pepsico (PEP), and ARM Holdings (ARMH).

Implied Volatility Mover
ARM Holdings (ARMH), a British Semiconductor maker, implied volatility is moving higher ahead of earnings. Shares are up 16 cents to $24.94 and options volume includes 11,000 calls and 1,925 puts. February 26 calls are the most actives, with 2,600 traded. Feb 25, 27 and 28 call options are actively traded. Implied volatility rose 6 percent to 58 ahead of the results, due Tuesday before market.