Events to Monitor Over Weekend 02-18-2011

Cusick's Corner
From a technical perspective, this market is strong and is showing no sign of any short-term resistance. While technicals are in line, next resistance level S&P 1344, there are some fundamental events that you should monitor over the weekend. First, German elections -- it looks as if the current party led by Chancellor Merkel is putting in flux Germany's support of the Euro. Second, Iran continues to test the waters figuratively and literally, having battleships swinging past Israel on the way to Syria. This headline risk is just that and will be hard to price in to a traditional model but with insurance policies, puts, still cheap, it might be worth looking at over the long weekend. See you Midday Tuesday.

The Dow Jones Industrial Average rallied in the final hour and closed at session highs on options expiration Friday. With no economic data or earnings of broad market significance to guide the action, trading was slow early and stock market averages were posting modest gains at midday. Action was mixed into early afternoon and then this week's rally continued into the close. Caterpillar (CAT) gained 2.4 percent after updating its sales outlook and helped send the Dow to a 73-point gain. At 12,391, the industrial average settled at its best levels of the day and its highest since June 2008.

Bullish
Target (TGT) shares traded down, but call volume was up Friday. Shares lost $1.25 to $51.90 and options volume rose to 3.5X the recent (22-day) average levels. 34,000 calls and 15,000 puts traded on the retailer. The top trade was a block of 10,000 April 60 calls at 17 cents when the market was 13 to 16 cents. 16,101 traded and, with 97 percent trading at the ask (or above the ask), it looks like upside call buyers were dominating the action. The bullish trading might be a play on earnings news. Not only does Target release results next Thursday, but the world's largest retailer, Walmart, reports Tuesday morning. Markets are closed Monday for President's Day.

Bullish trading was also seen in Genworth (GNW), Medtronic (MDT), and Walmart (WMT).

Bearish
Ford Motor (F) lost 20 cents to $15.77 and options action was brisk, with 140,000 calls and 139,000 puts traded on the automaker. Ford announced plans to form a joint venture with Sollar to sell vehicles in Russia. Investors didn't seem too pleased with the announcement. Not only did shares drift lower Friday, but the top options trade in Ford was a block of 14,211 March 15 puts at the 23-cent asking price. Another 10,000-contract block traded at 20 cents. 38,511 traded total. February and April 16 puts were the next most active options in Ford today.

Bearish flow also surfaced in Gerdau (GGB), Reliance Steel (RS), and Guess (GES).

Index Trading
Overall options volume in the index market was 542,000 calls and 646,000 puts Friday, which is about typical activity for the cash-settled indexes, according to Trade Alert data. One index that did see more interest than usual is the European Style S&P 100 Index (.XEO). The XEO index sports the same ticker symbol as the S&P 100 Index (.OEX), only backwards. The OEX, in turn, is one of the few cash indexes that settle American-style. Therefore, like stock and ETF options, OEX puts and calls can be exercised at any time prior to the options expiration. Like most other cash indexes, however, the XEO settles European style and XEO options can only be exercised at the expiration. 5,817 calls and 7,816 puts traded on the XEO today, which is 3X the normal volume for the index.

ETF Action
iShares Silver Fund (SLV) saw heavy trading, as silver resumed its run higher Friday. Silver (March) gained 98 cents to $32.55 and has now rallied more than 20 percent since late-January. The move in the white metal has triggered a flurry of activity in the SLV, which is an exchange-traded fund that holds the commodity. Shares gained 76 cents to $31.79 and notched a new 52-week high today. 270,000 calls and 110,000 puts traded on the ETF. February 31 and 32 calls, which are expiring, were the most actives. March 32 and 33 calls were the next most actives, as some investors were likely exiting February contracts and opening new bullish ones in March.