Early Dip Puts Market on Notice 04-14-2011

Cusick's Corner
The market is holding and this is where I want to see the bid come in with some conviction in an attempt to buck the recent trend of weak finishes. Tech and Financials are starting to become more volatile, plus Financials are under pressure with some trading volume as well. Some of the more notable names pulled from our Dragon tool under the screen of "Big Daily Change in Implied Stock Volatility" are Washington Federal Inc (WFSL), Validus Holdings Ltd (VR), Banco Macro SA (BMA). Also Large Cap Tech names are under pressure as M&As are still active and vowed shake ups by CEOs into earnings season, CSCO. Volatility is also on the move. There has been quite a bit of VIX call activity in June, potentially hedging volatility risk going into the end of the Fed's Quantitative Easing program. See you After Hours.

Stock market averages are in the red midday, but well off session lows. The table was set for early weakness on Wall Street after the Labor Department reported that jobless claims increased by 27,000 to 412,000 last week. Economists were looking for weekly claims to hold steady at 385,000. The Labor Department also reported that its Producer Price Index [PPI], a gauge of inflation on the wholesale level, increased by .7 percent. Economists were looking for an increase of 1.1 percent. The weak data weighed on early trading, but the decline never gathered any real momentum. Instead, there was a modest round of buying interest into midday. The Dow Jones Industrial Average is now flat and more than 100 points off session lows. The tech-heavy NASDAQ Composite down 8 points ahead of earnings from Google (GOOG), due after the closing bell. Overall options volume is picking up due to the options expiration, with 5.2 million calls and 5 million puts traded through Noon central time.

Bullish Flow
Supervalu (SVU) shares are up and calls are actively traded today after the grocery store chain reported quarterly earnings of 44 cents per share, which easily topped estimates of 34 cents. Revenues fell short of expectations, but the company upside earnings guidance for 2012. Shares are up $1.53 to $10.61 and options volume is 5X the average daily for SVU. 32,000 calls and 6,200 puts traded in the name so far. January 12.5 calls, which are 17.5 percent out-of-the-money, are the most actives. 5,400 traded. April and January 10 calls are seeing brisk trading as well. While some investors are probably taking new bullish positions on today's news, some of the volume is likely closing trades, as SVU had seen several days of increasing options action heading into the earnings report.

The largest options trade so far Thursday is in Microsoft (MSFT). Shares are down 34 cents to $25.29 and one investor bought a 108,000-contract block of July 27 call options at 44 cents per contract. They also sold 71,000 October 26 calls at $1.24. The activity appears to be rolling of a position from July to October. Similar spread trading surfaced in mid-January, which was closing out January 25 calls to sell new positions in July 27s. A large MSFT shareholder might be selling out-of-the-money calls on MSFT as part of a covered call strategy.

Bearish Flow
Coeur D'Alene (CDE) is under pressure and puts are actively traded today. Shares of the Idaho-based silver miner are down $2.52 to $31.24 after the Bolivian government might expropriate more mines and that the country's state mining company could potentially rescind contracts. Pan America Silver (PAAS) is trading down for the same reason. Meanwhile, CDE options volume includes 18,000 calls and 20,000 puts. April 31 and May 30 puts are the most actives, as some short-term players appear to be bracing for additional downside in CDE.

Yongye International (YONG) is trading down 30 cents to $4.64 and put volume picked up in the Chinese agricultural chemical company Thursday. 6,360 puts and 1,500 calls have traded in the name through midday. May 4 puts, which are 13 percent out-of-the-money, are the most actives. 2,600 traded. April 5 and May 6 puts are busy as well. Yong was trading at new 52-week highs near $9.50 per share in November. Shares are down 51.1 percent since that time and some investors appear to be bracing for additional losses in the stock in the weeks ahead.

Unusual Volume
Microsoft (MSFT) options volume is running 3X the (22-day) average, with 375,000 contracts traded and call volume accounting for about 78 percent of trades.

H&R Block (HRB) options volume is 18X the average daily, with 67,000 contracts traded and put volume representing for 99 percent of the activity.

Tyco International (TYC) options volume is running 2X the average daily, with 45,000 contracts traded and call volume accounting for 65 percent of the activity.

Increasing options activity is also being seen in Dendreon (DNDN), Anglogold (AUY), and Gamestop (GME).

Implied Volatility Mover
CBOE Volatility Index (.VIX) is down .25 to 16.67 following a day of choppy morning trading. The volatility index has moved lower in morning trading, even as the S&P 500 Index (.SPX) lost 2.6 points. VIX, which tracks the expected volatility priced into SPX options, normally moves higher when the S&P 500 heads lower. However, today's action has been relatively orderly and the options expiration might be affecting the VIX as well. Today is the last day to trade SPX and many other index products. Tomorrow is the last day for the remaining index, ETF and equity options.