Tech Lags 06-09-2011

Cusick's Corner
As I said in the past few Corners, a bounce here is not unexpected, especially after the pounding that has been going on the last 6 sessions. What is concerning me is that Tech was the real laggard today, and some might say it is about time. But I watch offensive sectors closely, Finance/Consumer Discretionary etc., to see if any push could get tired quickly. The data was not a game changer and was not giving any wind to either the Bulls or the Bears. I would not be surprised to see a grind into tomorrow and expiration next week. Also for S&P futures traders the new front month is now September. There will be no After Hours tomorrow as I will be traveling. See you Midday.

The Dow Jones Industrial Average snapped a 6-day losing streak, but finished off session highs Thursday. Economic data was in focus early after the Labor Department reported that jobless claims increased by 5,000 to 427,000 in the first week of June. Economists were looking for an increase of just 1,000. A separate report showed the nation's trade deficit at $43.7 billion in April. Economists were expecting the deficit to widen to $48.7 billion from $48.2 billion. A third stat released later was a report on wholesale inventories, which was up .8 percent in April and not far from economist estimates. Stocks rallied in morning trading and, after a six-day 521-point slide, the Dow Jones Industrial Average had tallied a 120-point gain through midday. From that point forward, there wasn't much news to guide the market and the Dow drifted lower in the second half of trading. At the closing bell, the industrial average was up 75 points and 59 points below its best levels of the day. The tech-heavy NASDAQ added 9.5 points.

Bullish Flow
Goodyear Tire (GT) shares rolled 7 cents higher to $16.06 and options on the tire-maker were actively traded Thursday 11,000 calls and 12,000 puts traded in Goodyear, which is 4X the average daily. The top trade was a 4,000-contract block of Jun 18 calls that traded at the 5-cent asking price. The contract is 12.1 percent out-of-the-money and expires at the end of next week. An investor might have initiated the trade to close a position. Open interest in the GT Jun 18 call is 7,020 contracts. Separately, blocks of January 12.5 puts traded on the $1.65 bid. At the end of the day, 10,340 of these puts had changed hands. Since open interest is only 911 contracts, the action looks like opening put sales and a bet that shares will hold above $12.5 through the January expiration. If not, the put sellers could face assignment and be asked to buy the stock at that price level. June 16, June 17 and July 15 calls on Goodyear were actively traded today as well.

Bullish trading was also seen in BofA (BAC), Titanium Metals (TIE), and Eldorado Gold (EGO).

Bearish Flow
Liz Claiborne (LIZ) shares gained 10 cents to $5.54 and options order flow seemed somewhat bearish today, as 7,450 puts and 300 calls traded in the retailer. June 5 puts, which are almost 10 percent out-of-the-money and expire in 8 days, were the most actives. Most of the action surfaced in afternoon trading and included lots on the 10 and 15-cent asking price. At the end of the day, 6,527 traded and 98 percent of the volume was at the offer. Open interest is only 33 contracts and so today's put buying looks opening. July 5 puts saw interest as well. It's not clear what was driving the bearish trading because there was no news on the retailer, but the put buying seems to reflect some concerns about the risk of short-term weakness in LIZ shares.

Bearish flow also surfaced in Melco Crown Entertainment (MPEL), Ciena (CIEN), and Skechers (SKX).

Index Trading
Trading was relatively quiet in the index pits, as market averages rebounded Thursday. The S&P 500 Index (.SPX) added 9.44 points to 1,289.00. Meanwhile, 526,000 calls and 515,000 puts traded on the SPX, S&P 100 Index (.OEX), and other cash indexes, which is about 90 percent the recent average daily volume, according to Trade Alert data. S&P 500 Index June 1,300 calls were the most actives. The contract is now .85 percent out-of-the-money and stops trading in one week. 33,100 traded. Some investors were possibly taking bullish positions in the calls on hopes for a short-term pop on the S&P over the next week. Others might have been closing out positions. Open interest in the SPX June 1,300 calls is 145,745 contracts.

ETF Trading
SPDR Basic Materials ETF (XLB) added 62 cents to $38.07and recovered some of the 5.8 percent loss suffered during the first six trading days in June. Options volume in the ETF was 40,000 puts and 5,275 calls. The top trades were part of a spread, in which the investor bought 10,000 September 35 puts at 91 cents each and sold 20,000 September 30 puts at 23 cents. Therefore, they paid 45 cents for this 1X2 put ratio spread. The position pays off if XLB shares fall below $34.55 through the expiration. An institutional investor might have initiated the spread to hedge exposure to the basic materials sector of the market. The 45 cent debit is at risk if shares hold above $35 and there is additional risk to the downside because only half of the 30 puts are covered by the 35s.