Where's the Top? 05-02-2011

Cusick's Corner
Top terrorist taken out, market runs overnight and now we have leveled out a break even into the Midday. The news of Bin Laden's death sent a wave of emotion into the overnight markets, but reality of a weak dollar, lagging Tech (XLK) and Financial (XLF) sectors, dragged on this upbeat news. This is the type of spot where traders, after an emotional announcement, see short-term tops put in place. Also with the world now on heightened terrorist alert, looking at protection is the name of the trading game. Volatility is still cheap and if the market does pullback either naturally or because of a headline, you can be prepared if you already bought puts. See you After Hours.

Stocks rallied at the open on news Osama Bin Laden was killed in a firefight with US forces, but trading has turned mixed into midday. News of Bin Laden's death triggered a modest rally on Wall Street Monday morning. Economic data helped as well. A report released thirty minutes into trading showed the Chicago PMI at 60.4 in April; which was down from 61.2, but better than the 59.7 that economists had predicted. Meanwhile, a report on Construction Spending was up 1.4 percent in March and much better than the 0 percent that economists had expected. Yet, after the early advance, the morning rally stalled and stocks are trading mixed at mid-session. Microsoft (MSFT) and Applied Materials (AMAT) are weighing on the tech sector. While the Dow Jones Industrial Average is up 20 points, the tech-heavy NASDAQ has given up 3 points. The CBOE Volatility Index (.VIX) added .83 to 15.58. Overall options volume is running about the usual levels, with 4.7 million calls and 3.8 million puts traded through 12:20pm ET.

Bullish Flow
Yahoo (YHOO) is trading up 2.3 percent to $18.11 on reports that Greenlight Capital has taken a position in the Internet search giant. According to media reports, the hedge fund is particularly interested in Yahoo's China unit. YHOO is up on the news and options are actively traded as well. 102,000 calls and 24,000 puts traded in the name so far today. May 19 calls, which are now 4.9 percent out-of-the-money and expire in 18 days, are the most actives. 18,800 traded. May 18, June 19 and June 20 call options are seeing active trading as well.

A notable spread trades in AT&T (T) Monday morning. Shares are up .3 percent to $31.22 and one of seventeen Dow stocks holding gains into midday. In options action, one investor apparently sold 19,200 May 30 calls at $1.63 and bought 19,200 June 33 calls at 23 cents. The spread is possibly a rolling trade. That is, the investor is selling a position in the May 30 calls, which are now $1.22 in-the-money and expire in 18 days, to buy a new position in June 33 calls, which are out-of-the-money. AT&T shares have performed well lately. The stock is up 14.2 percent since mid-March.

Bearish Flow
Whole Foods (WFMI) is trading down 4.8 percent to $59.72 and the biggest loser in the NASDAQ 100 after a Wall Street analyst downgraded the stock to Hold from Buy. Their price target on the stock is $64. Options volume in the grocery store chain is running 3x the average daily. 7,055 puts and 5,330 calls traded in Whole Foods so far. May 50 and 55 puts are the most actives and are perhaps seeing some closing trades. Both contracts are now in-the-money after a 10 percent skid in the share price since April 21.

DJ Real Estate ETF (IYR), which is a fund that holds shares of both Real Estate Investment Trusts [REIT] and real estate investment companies, has given up early gains and is down .4 percent to $61.95 midday Monday. Meanwhile, options volume is 3X the average daily, being driven by a substantial purchase of September 59 puts. An investor paid $1.95 per contract for 34,780 contracts. They also bought 893,700 shares at $62.35 each and appear to be bracing for heightened volatility in the real estate names through mid-September.

Unusual Volume
SPDR Industrials (XLI) options volume is running 2.5X the (22-day) average, with 126429,000 contracts traded and call volume accounting for about 61 percent of trades.

PowerShares Bullish Dollar Fund (UUP) options volume is 2X the average daily, with 61,000 contracts traded and put volume representing for 89 percent of the activity.

Williams Companies (WMB) options volume is running 3.5X the average daily, with 49,000 contracts traded and call volume accounting for 55 percent of the activity.

Increasing options activity is also being seen in Tenet Healthcare (THC), Dillard's (DDS), and International Coal (ICO).

Implied Volatility Mover
Tenet Healthcare (THC) is down and implied volatility is up Monday. Shares are down 4.2 percent to $6.64 after the company received a renewed unsolicited $7.25 per share takeover offer from Community Healthcare. Shares are down, as investors seem to have some uncertainty about the potential for a deal. 16,000 calls and 14,000 puts traded in the name. May 6 puts are the most actives. Meanwhile, implied volatility in THC options jumped 25 percent to 40.5.