Opening Drop & Pop

Cusick's Corner
With the drop and pop on the open today, the Midday has been chopping in a range, SPX 1270-1275. This has been an emotional couple of days, VIX back down to 26, and the market may be willing to take a rest into the Expiration tomorrow. While headline risk is still very real at this stage, whether the Mid East or Japan, we need to focus on fixed risk positioning, i.e. bull/bear spreads, covered calls, ratios, it will be difficult to outright position long or short. Volume is light so there is not too much credence in the current move; the bears are still dug in on the short-term trend. See you After Hours.

Stock market averages are rebounding with help from economic data Thursday. According to the Labor Department, weekly jobless claims fell by 16,000 to 385K in the period ended 3/12, which was in-line with expectations. However, continuing claims fell by 80,000 to 3706K through 3/5 and that was better than the 3750K that economists had expected. The CPI rose .5 percent in February, and .1 percent more than expected. February Industrial Production showed a decline of .1 percent, which was well below the .6 percent increase that economists had predicted. The List of Leading Indicators, which rose .8 percent, was also below expectations (1 percent). However, the Philadelphia Fed Manufacturing Survey for March showed a surprise increase to 43.4. Economists were looking for a decline to 28.1 from 35.9 in February. The overall data seemed to ease some of the anxiety about the economic impact from events overseas. Relatively orderly trading across Asia's markets and solid gains from European stock benchmarks helped support higher stock prices on Wall Street as well. The Dow Jones Industrial Average is up 142 points midday, the tech-heavy NASDAQ has added 35 and the CBOE Volatility Index (.VIX) gave back 3.17 to 26.23. Trading in the options market is active heading into the options expiration, with 6.4 million calls and 5.6 million puts traded through 12:40pm ET.

Bullish Flow
Citigroup (C), which is down 11.1 percent in the past month, has added 2 cents to $4.41 through midday. A noteworthy three-way combination traded in the bank Thursday morning. In this spread, the strategist sold 10,000 September 4 puts at 21 cents and bought 10,000 of the September 4.5 – 5 call spreads at 21 cents. They were selling the $4 puts to buy the call spread and coming out even (zero credits or debits) on the three-way spread. This investor is probably willing to buy the stock at $4 (the strike of the put) through the September expiration, but also wants the right to buy the stock at $4.5 (the strike of the first call), if shares rally beyond $4.50 during that time. The profit is also limited by the $5 call, which was sold.

Bullish trading continues in the CBOE Volatility Index (.VIX), even as the market's “fear gauge” loses 3.25 to 26.15 through mid-session Thursday. 458,000 calls and 80,000 puts have traded in the VIX. The biggest trade of the day is a block of 50,000 April 32.5 calls at $1.05. It was sold as part of a bullish 1X2 call ratio spread. In this trade, the strategist bought 25,000 April 25 calls at $2.25 and sold 50,000 April 32.5 calls at $1.05. The spread is bullish on the VIX, as it offers a max pay-out if VIX settles at 32.5 at the April expiration.

Bearish Flow
The sell-off in Cameco (CCJ) continues. Shares of the uranium miner are down 92 cents to $28.72 and have fallen 23.2 percent this week, as Japan's nuke crisis might motivate some countries to take nuclear power plant projects off the shelf. Heavy trading continues in CCJ options as well, with 16,000 calls and 21,000 puts traded in the name through midday. March 27 and 28 puts, which are out-of-the-money and expire after tomorrow, are the most actives. Some investors might be closing out positions ahead of the expiration, while others taking new bearish positions in anticipation of additional weakness in CCJ later today and Friday.

China Integrated Energy (CBEH) is reeling today after a law firm filed a lawsuit alleging that a merger deal might have involved overpayment and third party transactions. News of the lawsuit has shares down $1.12 to $3.88 and options volume is 4.5X the average daily. Put volume is approaching 9,000 contracts. 1,150 calls have traded in CBEH. June and September 2.5 puts are the most actives, as some investors appear to be bracing for additional fallout in shares of the Chinese oil and gas refiner.

Unusual Volume
Medco Health Solutions (MHS) options volume is running 6X the (22-day) average, with 66,000 contracts traded and call volume accounting for 60 percent of the volume.

Lorillard (LO) options volume is 2X the average daily, with 47,000 contracts traded and put volume representing for 67 percent of the activity.

CREE options volume is running 2.5X the average daily, with 30,000 contracts traded and call volume accounting for 64 percent of the activity.

Increasing options activity is also being seen in Big Lots (BIG), Savient (SVNT), and Quicksilver (KWK).

Implied Volatility Mover
Medco Health Solutions (MHS) shares are falling and implied volatility is higher after the California Public Employees' Retirement System (CalPERS) said it was ending talks with MHS about a 2012 pharmacy benefits management contract due to questions about a $4 million payment made to a former CalPERS board member. MHS shares are down $1.14 to $55.09 and options volume is 6X the average daily. 40,000 calls and 27,000 puts traded. Implied volatility is up 30 percent to 61.