Low Vol 04-26-2011

Cusick's Corner
Vol is low -- whether it is volume or volatility, it is low but the trend is high, so when you have a bull trend with low volatility you have three strategic approaches you can potentially implement. First, consider buying calls -- this is the most straightforward strategy, taking advantage of your bullish sentiment and low volatility. Second, consider buying at-the-money calls and selling out-of-the-money calls to create a bull call spread -- mitigating time risk and volatility, but limiting upside. Lastly, consider selling out-of-the-money put butterflies -- sell the wings and buy the body which could be appealing if we do get in a consolidation. These are all strategies that you can review and the expirations to consider would be in the next 30-60 days. See you After Hours.

Stocks are broadly higher with help from Consumer Confidence data and earnings news Tuesday. 3M (MMM) is up 2.6 percent and is one of 23 Dow stocks moving higher after the company posted earnings that topped Street estimates. Ford Motor (F) and Delta Airlines (DAL) are also seeing post-earnings strength. Meanwhile, the Conference Board reported this morning that its index of consumer confidence increased to 65.4 in April, from 63.8 in March and better than the 64.4 that economists had expected. Beyond that, it's been a relatively slow news day and some investors are now in wait-and-see mode ahead of the next round of corporate earnings as well as the conclusion of the Federal Reserve's meeting on interest rates Wednesday afternoon. The Dow Jones Industrial Average is up 114 points and the tech-heavy NASDAQ has added 27. The CBOE Volatility Index (.VIX) lost .46 to 15.31. Overall options volume is picking up from Monday's very slow pace, with 5.2 million calls and 3.2 million puts traded through 12:30pm ET.

Bullish Flow
Applied Materials (AMAT) is seeing increasing options action. Shares are up 28 cents to $15.58. Options volume includes 15,000 calls and 5,890 puts, which is more than double the average daily volume for the semiconductor capital equipment maker. The biggest trade of the day is a May 15 straddle (puts and calls), which was apparently sold at 93 cents, 2000X, and might be a closing trade. Meanwhile, May 16 calls, which are now 2.7 percent out-of-the-money and expire in 24 days, are the most actives. 8,445 contracts traded, with investors apparently paying between 20 and 22 cents per contract. There's no news in AMAT today. Earnings are expected around May 18, and possibly inside the May options expiration.

Microsoft (MSFT) has added 61 cents to $26.23 and is one of the best percentage gainers in the Dow Jones Industrial Average through midday Tuesday. Options volume is 95,000 calls and 37,000 puts. May 27 calls, which are 2.9 percent out-of-the-money, are the most actives. 16,340 traded. Weekly calls at the 26 line are seeing noteworthy action as well. 15,100 traded. The contract expires at the end of this week and Microsoft reports earnings Thursday afternoon. Some investors might be taking positions in the Weeklys to play Microsoft's earnings. The contract will have only one day of life remaining after the company reports results.

Bearish Flow
Longtop Financial (LFT), a Hong Kong-based software developer, touched a new 52-week low and is down $3.31 to $22.23 in volatile trading after Citron Research wrote a cautious note about the company. Meanwhile, options volume is running 8.5X the recent average daily after 34,000 puts and 7,690 calls traded in the name. May 20 puts which are now 10 percent out-of-the-money and expire in three and a half weeks, are the most actives. 7,840 traded. May 22.5, June 20 and May 25 puts are seeing brisk trading as well.

iShares Silver Fund (SLV) is under pressure after silver faced a round of profit-taking Tuesday. Silver, which had rallied more than 75 percent over the past few months, is down $2.09 to $45.05. Meanwhile, SLV, which is the exchange-traded fund that holds the actual metal, is down $1.85 to $43.98. Options on the fund remain actively traded. 1.43 million contracts traded on the ETF yesterday. 405,000 calls and 346,000 puts have traded so far today.

Unusual Volume
Yum Brands (YUM) options volume is running 32X the (22-day) average, with 134,000 contracts traded and call volume accounting for about 51 percent of trades.

Longtop Financial (LFT) options volume is 8X the average daily, with 38,000 contracts traded and put volume representing for 83 percent of the activity.

Broadcom (BRCM) options volume is running 2X the average daily, with 33,000 contracts traded and call volume accounting for 62 percent of the activity.

Increasing options activity is also being seen in Netapp (NTAP), Veeco (VECO), and Express Scripts (ESRX).

Implied Volatility Mover
Veeco Instruments (VECO), a Plainview, NY manufacturer of Light Emitting Diodes [LEDs], is trading up 3.5 percent to $49.66 after the company reported a quarterly profit of $1.33 per share, which was 12 cents better than Street estimates. VECO options volume is running 5X the average daily. 13,000 puts and 8,570 calls traded in the name so far. Meanwhile, implied volatility is down 17 percent to 44 and falling to new 52-week lows.