Equities Cannot Be Denied 05-12-2011

Cusick's Corner
The Bears were not able to garner momentum after the open and by the Midday lost all ground. This is encouraging for equities that the bid was able to hold and get the market into the green. We also saw that the Dollar has crept back below mid-term support, 50-Day Simple Moving Average, further catalyzing the upside into the After Hours. This action is technically giving credence that we are in a consolidative phase and if the commodities continue to cool off and the buck stays below 75, the Bulls may challenge the highs. See you After Hours.

Stocks are trading mixed midday. The underlying tone was cautious early following a round of uninspiring economic news. The Labor Department reported that weekly jobless claims fell by 44,000 to 434,000 in the first week of May. Economists were looking for a decline to 423,000. Separately, the Labor Department also said that its Producer Price Index, a gauge of inflation at the wholesale level, increased by .8 percent in April. Economists were expecting a PPI increase of .5 percent. Meanwhile, the Commerce Department reported that Retail Sales rose .5 percent last month, and .1 percent less than expected. The data was disappointing. At the same time, Cisco Systems (CSCO) shares are trading down 4.3 percent after the company reported earnings that beat Street estimates, but then lowered its profit forecast. CSCO is the biggest loser in the Dow Jones Industrial Average, which is down 3 points. However, the tech-heavy NASDAQ gained 4. The CBOE Volatility Index (.VIX) eased .15 to 16.90. Trading in the options market is active, with 5 million calls and 4.6 million puts traded through 12:30pm ET.

Bullish Flow

Lowe's (LOW) calls are busy today. Shares are off 7 cents to $25.86 and the July 28 calls are the most actives. The contract is 8.3 percent out-of-the-money and volume is approaching 17,000 contracts. The top trade of the day is a block of 3,300 traded at 30 cents and was an opening buyer, according to data from the options exchange. May and July OTM 26 calls are seeing interest as well. 23,000 calls and 3,960 traded in LOW so far, which is 3X normal volume for the name. The increased activity comes ahead of earnings, which are scheduled for the morning of May 16.

A noteworthy spread trades in Valeant Pharmaceuticals (VRX) today. Shares are up 4 cents to $51.93 and in morning trading, an investor apparently sold 12,000 July 35 calls at $16.50 per contract and bought 12,000 January 60 calls at $4.30. They collected $12.20 on the spread and are probably rolling a winning position of deep in-the-money July calls to out-of-the-moneys in January. VRX rallied on earnings news Monday and has now gained 83.6 percent year-to-date.

Bearish Flow

Cisco Systems (CSCO) shares are down and options are very heavily traded after the networking giant reported an upside earnings surprise for the previous quarter, but the good news was overshadowed by a downside forecast. CSCO is off 78 cents to $17. May 17 calls, which are now at-the-money, are the most actives. 66,675 have changed hands. 50 percent of the volume traded at the bid, as some disappointed investors might be exiting bullish positions on the news. The contract saw heavy trading yesterday prior to the results. May 17 puts, May 18 calls and January 20 call options are seeing heavy trading as well.

iShares Silver Fund (SLV) continues to see heavy trading. Shares are off 36 cents to $34.03 after silver suffered another day of losses. The metal was recently down 68 cents to $34.83 and has plummeted 26.7 percent month-to-date. Players in the options market are jockeying for the next move in the metal in the SLV, which is the exchange-traded fund that holds the metal stored in bank vaults. 487,000 calls and 451,000 puts traded in the ETF through midday. May 30 puts, which are 11.8 percent OTM, are the most actives. 31,000 contracts traded.

Unusual Volume
Goldman Sachs (GS) options volume is running 3X the (22-day) average, with 129,000 contracts traded and put volume accounting for about 58 percent of trades.

Akamai (AKAM) options volume is 2X the average daily, with 51,000 contracts traded and call volume representing for 80 percent of the activity.

Juniper Networks (JNPR) options volume is running 3X the average daily, with 46,000 contracts traded and call volume accounting for 90 percent of the activity.

Increasing options activity is also being seen in Huntsman (HUN), MBIA (MBI), and International Paper (IP).

Implied Volatility Mover
Goldman Sachs (GS) implied volatility is heading higher amid heavy trading in GS options today. Shares are trading down $6.18 to $141.70 after a Wall Street analyst downgraded the stock to Sell and said the Justice Department is facing increasing pressure to file criminal lawsuit against the investment bank. 58,000 calls and 81,000 puts have traded in Goldman Sachs through midday. Implied volatility jumped 18 percent to 26.