Impact Difficult to Price Into Market 03-14-2011

Cusick's Corner
The market is down, but the total impact of Japan is far from over or able to be priced into the market. The market could look to establish a base right around the 1275 level on the S&Ps. What is known is that is volatility is on the move in both names related to Japan and the nuclear industry. Market makers and traders will be trying to determine short and long term implications on not only Japan, but the flow of trade and capital. See you After Hours.

Stocks are broadly lower on concerns about the economic impact from last week's massive earthquake off the shores of Sendai, Japan. Japan's Nikkei market average lost more than 6 overnight and stock market averages suffered losses across Europe as well. Germany's DAX paced the decline after falling 1.75 percent. With no economic data or earnings of significance in the US, there isn't much domestic news to drive the market action. Crude oil (April) hit a low of $98.47 and was recent down 89 cents to $100.27 a barrel. Gold and Treasuries are seeing modest gains with help from the flight-to-safety trade. The Dow Jones Industrial Average is down 120 points. The tech-heavy NASDAQ lost 19. The CBOE Volatility Index (.VIX) is up 2.36 to 22.44. Trading in the options market remains active, with 4.4 million calls and 4 million puts traded through 12:00pm ET.

Bullish Flow
Pfizer (PFE) is trading up 2.1 percent to $19.88 and the best gainer in the Dow Jones Industrial Average after a Wall Street analyst speculated that the company might break itself up by shedding, not just its non-pharmaceutical businesses, but its generics drug business as well. Dow Jones Newswires reported the story. The stock is touching new 52-week highs and PFE options are very busy today. 159,000 calls and 54,000 puts traded in the name so far. March 20 calls have traded more than 45,000 contracts and are today's second most actively traded equity options contract.

CBOE Volatility Index (.VIX) is trading up 2.36 to 22.44 and options action is picking up in the VIX pits today. 370,000 calls and 114,000 puts traded on the volatility index so far. Some of the volume is expiration-related. VIX options expire Wednesday. The top trade of the day was in the May options, however, after an investor bought 25,000 May 25 calls and sold 50,000 May 30 calls on the VIX. This 1X2 call ratio spread is a bullish play, as it makes its best profits if VIX rallies to 30 by the May expiration.

Bearish Flow
Cameco (CCJ), a Canadian uranium miner, lost $5.64 to $31.74 and options volume surged after last week's earthquake damaged a Japanese nuclear reactor. A number of names in the industry are under pressure today (also see today's Implied Volatility Mover) on concerns about shortages, delayed projects and falling uranium prices. CCJ is reeling and today's options volume in the name includes 34,000 calls and 18,000 puts. The top trade of the day is a block of 950 Mar 38 calls, which is possibly a seller opening a position on the view that the stock isn't likely to recapture $38 by the March expiration, which would represent a 20 percent rally in five days.

Toyota Motors (TM) shares are down $5.19 to $80.46 and options volume is 8X the average daily on concerns that the quake will slow Japanese auto-production. Many parts suppliers are located in the affected region. TM is trading down and options volume includes 15,000 puts and 7,050 calls. March 80 puts have traded 3,330 contracts and are the most actives. April 70, 75, and 80 puts are seeing interest as well.

Unusual Volume
Pfizer (PFE) options volume is running 3.5X the (22-day) average, with 212,000 contracts traded and call volume accounting for 75 percent of the volume.

iShares Japan Fund (EWJ) options volume is 13.5X the average daily, with 183,000 contracts traded and put volume representing for 74 percent of the activity.

Electronic Arts (ERTS) options volume is running 9X the average daily, with 82,000 contracts traded and call volume accounting for 99 percent of the activity.

Increasing options activity is also being seen in USEC (USU), Cameco (CCJ), and Cemex (CX).

Implied Volatility Mover
USEC (USU), a Bethesda, MD supplier of low-enriched uranium to nuclear power plants, is trading down 14 percent to $4.45 and implied volatility is moving up after the Japanese quake raised concerns about the short-term and long-term outlook for the industry. USU is down and options volume is 12X the average daily. 8,660 calls and 5,600 puts traded in the name. Implied volatility is rallying 37 percent to 64.