Shorts in a Bit of a Squeeze 05-25-2011

Cusick's Corner
There I was watching the Dollar trade, DXM11, and it was trading at 76.350 -- nice move and then I got a glimpse of the S&Ps, ESM11, and they are breaking 1313 which is the long standing trendline to the upside. Now the shorts are in a bit of a squeeze here in the Midday, but this technical breach was a flag that should be monitored and respected. The Durables were not what the market expected but the market will see what May looks like, especially since March was such a hot number. Commodities (thanks Goldman) are on the move but that could have been telegraphed also from the currency firming in the commodity-based economies, but the Buck is the most watched and it is waffling around the .76. See you After Hours.

Stocks have battled back from morning weakness and major averages are sporting modest gains midday. Economic news weighed on morning trading after data showed Durable Goods down 3.6 percent in April, which was worse than the 2 percent decline that was expected. Meanwhile, the euro was under renewed pressure on worries about debt problems in Greece and other nations in the Euro-zone periphery. However, the euro is now well off session lows and almost back to flat. Meanwhile, some of the commodity-related names are seeing strength after crude oil rallied $1.25 to $100.84 on bullish inventory data. Gold gained $3 to $1,526.2 an ounce. The Dow Jones Industrial Average has erased early losses and is up 25 points. The tech-heavy NASDAQ added 14.4. The CBOE Volatility Index (.VIX) edged down .41 to 17.41. Overall options volume is light for a second day, with 4 million calls and 3.1 million puts traded through 12:30pm ET.

Bullish Flow
Yahoo (YHOO) shares gained 10 cents to $16.23 and call volume is picking up in the Internet company today. Yahoo is hosting its investor day and is discussing a variety of topics including technology, content, and its financials. Some investors seem to be expecting good news. More than 33,000 Weekly 17 calls traded in Yahoo yesterday. These contracts expire at the end of the week and are now 4.7 percent out-of-the-money. The same contract is busy again today. 28,895 contracts have changed hands. The weekly 16 calls, which are 23 cents in-the-money, are actively traded as well. 9,000 contracts changed hands. Total options volume in Yahoo through midday is 76,000 calls and 30,000 puts.

Powershares Bullish Dollar Fund (UUP) hit a morning high of $21.79 on weakness in the euro, but was recently down a nickel to $21.69. In morning action, a block of 15,000 June 22 calls traded at 16 cents per contract on ISE. The trade was an opening buyer, according to data from the ISEE. 10,000 more traded at an average of 15.5 cents on NYSE. Total volume in the UUP June 22 call is now 32,188 contracts. The option is 1.4 percent out-of-the-money and expires in three and half weeks. Investors are possibly taking positions in the contract in anticipation of additional short-term strength in the US dollar.

Bearish Flow
AIG shares are under pressure and options are actively traded after the company priced an offering of common stock at $29 per share. AIG is falling to new 52-week lows and was recently down $1.46 to $28. Meanwhile, today's options volume is 3X the average daily. 61,000 calls and 46,000 puts traded in the name so far. July 35 puts are the most actives after a block was sold at $6.70, 11,000X and might be a closing of in-the-money puts after a 54.2 percent plunge in the stock price since early-January.

American Eagle (AEO) is down on disappointing earnings news. Shares are off 80 cents to $12.86 and have now tumbled 12 percent since peers Aeropostale and Gap Stores released profits that fell short of expectations on Friday. Meanwhile, 4,400 puts and 2,545 calls have traded in American Eagle so far today. June 13 puts, which are now 14 cents in-the-money, are the most actives. 1,900 traded November 13 puts, June 14, and June 15 puts are seeing some interest as well.

Unusual Volume
Williams Companies (WMB) options volume is running 3X the (22-day) average, with 107,000 contracts traded and call volume accounting for about 99 percent of trades.

Allstate (ALL) options volume is 6X the average daily, with 66,000 contracts traded and call volume representing for 99 percent of the activity.

El Paso (EP) options volume is running 2.5X the average daily, with 57,000 contracts traded and call volume accounting for 64 percent of the activity.

Increasing options activity is also being seen in Guess (GES), Nabor's (NBR) and Ralph Lauren (RL).

Implied Volatility Mover
Tesla Motors (TSLA) calls are heavily traded and implied volatility is higher. Shares are up $1.16 to $27.88 on news of a secondary offering. As part of a follow-on to the stock offering, the company's CEO will buy 1.5 million shares of the electric car maker. The stock rallied on the news. Options are actively traded as well. 16,000 calls and 3,600 puts so far. Meanwhile, implied volatility in TSLA options jumped 20 percent to about 60.