Trading Turns Mixed 04-19-2011

Cusick's Corner
The newest S&P rating is vetting itself throughout the financial shows, keeping viewers, but the reality is that the US going into default is not a reality. It has put more pressure on politicians but the market knows that the credit markets are not going to shut down. Plus the status of the Buck as a reserve currency is not unwinding today or tomorrow, but spending has been put on notice. Spending also needs to be watched and positioned in the EU debt crisis (which we discussed as an issue last week) and that is what the market reacted to yesterday. The Euro was under pressure and the market has growing concerns that the Banks in the EU are now so debt ridden that this stress is going to put more potential fear and pressure on the large cap Banking stocks. It might be worth adding Gold to your portfolio to mitigate some of these potential risks. You would have to consider the different products that are available too -- gold, the ETF GLD, GCM11 futures outright or miners, like GDX. See you After Hours.

Trading has turned mixed Tuesday, with earnings from Johnson & Johnson (JNJ) helping to lift the Dow Jones Industrial Average. JNJ is up 2.4 percent and one of 17 Dow stocks heading higher after the company said it earned $1.35 per share in the most recent quarter, which beat Street estimates by 9 cents. Meanwhile, the latest Housing Starts data showed an improvement to 549,000 in March, which was up from 512,000 last month and also better than the 520,000 that economists had expected. The Housing Starts number and J&J's positive results helped lift the Dow Jones Industrial Average up 30 points through midday. The NASDAQ lost 1.3 points ahead of earnings from tech bellwether Intel (INTC), due out after the closing bell. The CBOE Volatility Index (.VIX) has given up .84 to 16.12. Overall options volume is light today, with 4.2 million calls and 3.2 million puts traded through 1:15pm ET.

Bullish Flow
Bank of America (BAC) shares are falling for a sixth day and are off 12 cents to $12.30. Meanwhile, trading in BAC options is very brisk. 230,000 calls and 166,000 puts traded in the bank so far. The biggest trade is a block of 28,000 May 13 calls traded at 17 cents per contract. It was part of a ratio spread, in which the investor sold the May 13 calls and bought 14,000 June 13 call options. The strategist is possibly closing out a position in the May 13s, which are falling nearly 6 percent out-of-the-money, and opening a new smaller position in the June 13s. They might still have a bullish view on the bank, but are buying an additional month for the trade to play out.

General Electric adds 24 cents to $20.23 and more than 20,300 Weekly 20 calls traded in GE so far. Since Friday is an exchange holiday, these calls have only two trading days of life remaining after today. It looks like some investors are paying a nickel and are possibly taking bullish positions ahead of earnings. GE is due to release its results Thursday morning. After that, the weekly calls will have one day of life remaining. If shares settle below $21, or 3.8 percent above current levels, those calls will expire worthless.

Bearish Flow
Pulte Homes (PHM) shares gained 29 cents to $8.13 after the Commerce Department released Housing Starts numbers Tuesday morning. Both the starts and building permits rose more than expected in March. The sector is up on the news. Meanwhile, options volume in PHM is running 5X the average daily. 28,000 calls and 2,100 puts traded. The top trade was a block of 21,000 June 8 calls, which were sold at 54 cents per contract. Since volume exceeds open interest, this appears to be a new position and possibly a bet that shares will drift back below $8 through the June expiration.

Ecolab (ECL), a St. Paul, MN cleaning products company, is trading up 44 cents to $51.18 and a noteworthy spread surfaced in midday action. In this trade, the investor bought 19,000 May 50 puts at 85 cents and sold 19,000 May 45 puts at a nickel. They paid a nickel for the spread and are possibly looking for the stock to fall to $45 or less by the May expiration, which is in 31 days. A shareholder might have initiated the spread as a hedge ahead of earnings, due later this month.

Unusual Volume
GM options volume is running 3.5X the (22-day) average, with 155,000 contracts traded and put volume accounting for about 54 percent of trades.

Goldman Sachs (GS) options volume is 2X the average daily, with 100,000 contracts traded and call volume representing for 63 percent of the activity.

SPDR Basic Materials (XLB) options volume is running 3.5X the average daily, with 66,000 contracts traded and put volume accounting for 97 percent of the activity.

Increasing options activity is also being seen in Valero (VLO), AIG, and Allstate (ALL).

Implied Volatility Mover
Perfect World (PWRD) shares are rallying and options are actively traded after the company was highlighted favorably in an article titled "The Next Great Chinese Stock" on a Forbes blog. PWRD surged $3.18 to $28.73 and options volume is 5X the average daily, with 5,360 calls and 800 puts traded in the name. June 31, June 33 and Sep 35 calls are the most actives. Implied volatility is up about 6 percent to 58.