Uninspired 06-22-2011

Cusick's Corner
Uninspired - that's the type of action that we saw slipping into the evening. The Fed Chief spoke and the market held then pulled off in the last hour. This also coincided with the strength in the Dollar, DXU11 75.25, bouncing off the 21-Day Moving Average and the highest volume levels in S&P Futures during that final hour. I held my short deltas into the announcement, resistance held at 1292 and there was little interest in the dips. The market is sitting right off first level of support, 1280 on spot and 1284 on cash S&Ps, going into the overnight session, especially since the Fed Chief was pretty animate about no need for further QE. Watch the overnight markets, China will have data on manufacturing and given the tone of data that has been coming out from the EU and here at home, any positive surprise could be the spark that the bulls did not see today. See you Midday.

Stock market averages fell during the final ninety minutes of trading and finished with losses Wednesday. Both the Dow Jones Industrial Average and the NASDAQ were little changed at midday and ahead of the Federal Reserve's post-meeting statement. With little news flow to guide the morning action, the tone of trading took a wait-and-see feel ahead of the news. The post-meeting text started making the rounds at 12:30pm ET and Fed officials didn't offer much new information. Economic growth forecasts for this year and next were slashed. Few clues about future monetary policy were offered. Some investors had hoped the Federal Reserve would signal plans for another round of quantitative easing. It was not to be. Consequently, some disappointment set in and the Dow sold off during the second half of trading. At the closing bell, the industrial average was down 80 points and near the session lows. The tech-heavy NASDAQ lost 18.

Bullish
Call options on KB Homes (KBH) were busy today ahead of a report on New Home Sales. The data will be released Thursday morning. KBH shares added 13 cents to $11.83 ahead of the news and options volume was 2X the average daily for the homebuilder. 10,000 calls and 900 puts traded in the name. August 12 calls, which are now 17 cents out-of-the-money, were the day's most actives in KBH. More than 5,000 contracts traded. August 15 and July 12 calls saw brisk trading as well. KB Homes shares have rallied 12.34 percent since June 10. Today's call buyers might be looking for the New Home Sales to serve as a catalyst that sends the stock higher still.

Bullish trading was also seen in Beazer Homes (BZH), Emerson Electric (EMR), and Bed, Bath and Beyond (BBBY).

Bearish
Campbell Soup (CPB) has seen two days of bearish trading. July and August 34 puts were the most actives yesterday. Shares lost 24 cents to $33.98 today and July 33 puts saw the most volume. 7,680 contracts traded against open interest of 576 contracts. The contract, which is 2.9 percent out-of-the-money and expires in 23 days, traded at an average price of 24.5 cents. Today's heightened activity was apparently driven by a (unconfirmed) brokerage recommendation to buy July 33 puts ahead of the soup company's Analyst Day, which is slated for July 12 and inside the expiration.

Bearish flow also surfaced in Hyperdynamics (HDY), RF Micro Devices (RFMD), and Allscripts (MDRX).

Index Trading
The European-style S&P 100 Index (.XEO) saw more volume than usual. XEO is an index that tracks the same stocks as the S&P 100, or OEX (Notice that the ticker is OEX backwards). The only difference between the two indexes is in the way the options settle. OEX options settle American-style and can be exercised (assigned) at any time prior to the options expiration. Like most other index products, XEO options are European-style and exercise (assignment) can only happen at the expiration. Some investors were showing interest in the European-style index today, as 8,450 puts and 1,650 calls traded on the XEO. The index lost 3.88 to 572.46 and most of the volume was due to put spread trading in the Weekly options that expire 6/24.

ETF Action
Basic Materials Select Sector Fund (XLB) erased early gains and lost 15 cents to $37.74 on the day. A noteworthy options trade surfaced in the ETF after an investor bought 16,900 July 39 calls at 47 cents and sold 16,900 July 37 puts at 44 cents. They paid 3 cents for this bullish risk-reversal and appear to be opening a new position. The combo traded more than once and volume in both contracts surpassed 30,000. It's a bold move, as the calls are 3.3 percent out-of-the-money and expire in three and half weeks. In addition, if shares fall below $37 through the expiration, the strategist will be on the hook to buy 100 XLB shares at $37 per every put contract that is sold.