Semiconductors Get Lift 04-04-2011

Cusick's Corner
With the buck easing and the Bonds holding and coming off the worst levels of the day, equities had enough to stay breakeven. Yields need to continue to outpace the bounce in the greenback otherwise the equities could start to get a little nervous. This may be the time to start looking at some of the names in your portfolio and get ready for earnings that will be hitting in the next month. That way if there's some stress building into the event, you will have already prepared a plan of action. Whether deciding between a covered call, protective put, or stock replacement with a longer term option, you'll be making strategic decisions based on a plan and not a headline. I will keep an eye out for these types of situations and discuss them over the upcoming month. One last note, on the close the Semis got a lift when Texas Instruments (TXN) announced the purchase of National Semiconductor (NSM) for a whopping 79% premium! This has the Semis, SMH, moving in the After Hours. See you Midday.

Stock market averages finished mixed on a very slow news day. Trading was relatively uneventful overseas before the opening bell on Wall Street. Meanwhile, in the US, with no economic news or earnings of importance, there was not much information to guide the morning action. Trading was mixed early and the grind continued throughout the session. Oil prices are getting some attention, as the rally continued to start the week. Crude was recently up 36 cents to $108.30 a barrel. Beyond that, there isn't much to report Monday. The Dow Jones Industrial Average traded in very narrow 38-point range and added 23 points on the session. The tech-heavy NASDAQ Composite Index finished flat.

Bullish
Clean Energy Fuels (CLNE) continues to rally. Shares added $1.09 to $17.41 and have gained 35 percent since March 17. Recent signs of increased government support for using natural gas as a clean energy alternative have been fueling the rally in CLNE. Options were actively traded as shares ran higher last week and the trend continued again today. 13,000 calls and 2,760 puts traded in the name. Most of the action was smaller sizes. The biggest trade of the day was a 300-lot of June 20 calls traded at 69 cents when the market was 55 to 70 cents. April 18 calls were the most actives. 2,157 contracts traded. The call option is 3.4 percent out-of-the-money and expires at the end of next week. Some investors might be taking positions in the contract on hopes that the rally in CLNE can continue for the next 11 days.

Bullish trading was also seen in BofA (BAC), Sohu.com (SOHU), and AK Steel (AKS).

Bearish
LSI Logic (LSI) saw increasing put volume today. Shares of the Milpitas, CA chipmaker finished the day down 9 cents to $6.57 and 41,000 puts traded in the name, which compares to average daily put volume of 1,060 contracts and call volume of 611 contracts. January 5 puts were the most actives after more than 31,000 contracts changed hands. The top trade was 1,464 contract block at the 35-cent asking price, which looks buyer-initiated. If so, the timing might not be so good. LSI is trading up 3 percent in the after hours session Monday on news Texas Instruments (TXN) has made a $6.5 billion all-cash bid for rival National Semiconductor (NSM).

Bearish flow also surfaced in Boston Scientific (BSX), Juniper Networks (JNPR), and Duoyuan Global Water (DGW).

Index Trading
The PHLX Semiconductor Index (.SOX) is likely to see some strength tomorrow on news that Texas Instruments is making a move to buy National Semiconductor. The index, which tracks the share price action of leading chip companies, lost 3.80 to 429.05. Meanwhile, options volume on the index hit more than twice the normal - which isn't much because SOX doesn't see a lot of trading activity. Most of the action was in the April 440 calls, which are 2.6 percent out-of-the-money and expire at the end of next week. 1,000 contracts traded. The top trade was a 525-contract lot at the $2.95 asking price, which appears to be an upside call buyer taking a position in anticipation of a short-term pop in SOX. The chip index is down nearly 10 percent from a 52-week high set in mid-February, but might see some strength on the deal news Tuesday.

ETF Action
iShares Silver Fund (SLV) touched a new 52-week high and finished the day up 72 cents to $37.58 after silver (May) gained 82 cents to $38.55. Meanwhile, options volume in the silver fund included 164,000 calls and 64,000 puts. The top trade of the day was a four-way spread. The strategist sold 10,900 July 37 - 43 call spreads and bought 3,600 July 40 - 45 call spreads. The move looks like a roll up in strike prices. That is, the strategist is closing out a position in the July 37 - 43 call spread and opening a new, but smaller, bullish position in the July 40 - 45 call spread. SLV is up 43.3 percent since late-January and the strategist might feel that the time is ripe to liquidate the spread, but still wants to maintain bullish exposure to the metal.