International News Trumps Domestic 02-11-2011

Cusick's Corner
It was quite an end to an eventful week. Next week could be a big week in the markets with Retail Sales due out pre-market on Monday -- watch the Retailers, XRT, want to see if this weather is cooling down store activity. Housing data also gets a small push Monday with the NAHB due out at 10am ET. At the end of the day, international events trumped any domestic news. I am still trying to soak in all of these quickly changing world events and will be watching these developments with great interest. Have a good weekend.

Stock market averages are holding gains Friday on news Egypt's Hosni Mubarak has stepped down. The underlying tone of trading was cautious early after Mubarak said late-Thursday that he would remain in power until September elections. The defiance raised some concern about escalating violence and unrest in Egypt, as well as other parts of the Arab world. Yet, anxiety levels eased after news agencies reported Friday that the Egyptian leader has now relinquished his power. Meanwhile, the domestic news of the day included the latest Trade Balance data: at -$40.6 billion in December, which was in-line with expectations. Separate data released later showed the University of Michigan Consumer Sentiment Index up to 75.1 in February; which was better than the 74.2 in late January, but below economist estimates of 75.5.

Bullish Flow
Office Depot (ODP) sees some unusual volume Friday. Shares of the office supplies retailer are trading up 20 cents to $6 even and options volume is 9X the average daily. 14,000 calls and 1,000 puts traded so far. March 6 calls are the most actives and the action includes multiple blocks traded at 35 cents when the market was 25 to 35 cents. 9,630 traded total. Since open interest is 1,651 and most (96 percent) traded at the Ask, it looks like call buyers were initiating the trades and looking for ODP to move higher over the next five weeks. It's possibly a play on earnings, due February 22.

Bullish order flow was also seen in Abbott Labs (ABT), IMAX, and Waste Management (WM).

Bearish Flow
Virgin Media (VMED) is seeing some pre-earnings put activity today. Shares are performing well, gaining 76 cents to $27.35. Meanwhile, 5,020 puts and 1,090 calls traded on the British media company. February 26 puts are the most actives. March 26 and February 30 puts are seeing interest as well. Implied volatility is up 3 percent to 34 and some investors might be initiating put purchase to hedge the stock (or make outright bearish bets) ahead of the company's earnings, due next Thursday.

Bearish flow also picked up in Corning (GLW), Nokia (NOK), and AstraZeneca (AZN).

Index Trading
CBOE Volatility Index (.VIX) eased a bit this week. Although the volatility index rose in three of this week's five trading days, it is down .37 to 15.72 today and off .21 since a week ago. Moreover, VIX is down 21.6 percent from the multi-month highs beyond 20 seen two weeks ago. On Friday, January 28, VIX surged after violence escalated in Egypt and other parts of the Arab world. The event triggered worries that these events might have a global economic impact and create an earnings risk to US corporations. However, those fears have eased during the past two weeks and the trend continued Friday after Egyptian leader Hosni Mubarak stepped down.

ETF Trading
Basic Materials Select Sector Fund (XLB) puts are busy Friday. Shares touched a new 52-week high of $40.07 Monday and are up 32 cents to $39.95 Friday. Meanwhile, 54,000 puts have traded in the fund. Buyers of June 37 puts surfaced early. More than 30,000 contracts now traded. June 38 puts are being bought as well. XLB is one of nine select sector funds that collectively hold all of the S&P 500 stocks, but grouped by economic sector. By buying puts on XLB, an investor is making a bet against the companies that are involved in the basic materials space, like metals, mining and minerals companies. An institutional investor looking to hedge exposure to that sector of the market might be initiating some of these trades.