New XPOUND 06-28-2011

Cusick's Corner
We have a new XPOUND Design, making the newsletter easier to read both online or on your smart phone. One new design feature allows you to check on the risk/reward ratio of a strategy mentioned in XPOUND by clicking on the "Analyze this Trade" link to help you gain quick access to the Trade Calculator. If you're not a customer, you'll want to open an account so you can access these free tools that we now incorporate into XPOUND daily. Please send us your feedback on the new look and feel to: . See you After Hours.

Stock market averages are holding gains despite mixed economic news Tuesday. The table was set for early gains on Wall Street after European stock indexes moved broadly higher on hopes Greece can avoid defaulting on its debt. There's optimism that Greek parliament will adopt an unpopular austerity plan despite angry protests in the streets of Athens. The euro has added .5 percent against the dollar. In the US, some of the early focus was on the S&P/Case Shiller Index, which showed home prices improving in US cities for the first time in 8 months. Separate data released later was less bullish. According to the Conference Board, consumer confidence fell in June. The index declined to 58.5, from 60.8 the month before and below estimates of 62.0. Yet, stock market averages brushed off the poor consumer confidence numbers and seemed to take their cue from action overseas instead. Through midday, the Dow Jones Industrial Average is up 118 points. The tech-heavy NASDAQ gained 31. CBOE Volatility Index (.VIX) is down .83 to 19.73. Overall options volume is picking up from yesterday's slow pace, with 3.9 million calls and 3.5 million puts traded through 12:30pm ET.

Bullish Flow
The earnings calendar is light this week, but Nike (NKE) shares are sprinting higher on better-than-expected results. After the close of trading yesterday, the company reported a fourth quarter profit of $1.24 per shares on $5.77 billion in revenues. Analysts were expecting $1.16 on $5.53 billion. NKE is running $5.66 higher to $87.28 through midday. Options volume is 25,000 calls and 26,000 puts, which is 5X the average daily for the name. July 90 calls, which are now 3.1 percent out-of-the-money and expiring in 17 days, are the most actives. 6,545 traded. Meanwhile, implied vols in NKE options plummeted 28 percent to 25 now that the earnings event risk has passed.

An interesting trade surfaced in the iShares Japan Fund (EWJ) today. Shares are up 10 cents to $10.18 and one investor sold 100,000 September 10 puts. They sold half at 27 cents and the other half at 28 cents. Open interest in the contract is 126,911 and so today's put write might be a closing trade. If so, it likely exits a position opened in early-April and not long after the Japan quake rattled the Northern region in mid-March. If so, the investor is possibly anticipating that volatility across Japan's equity markets will continue to ease in the months ahead and is closing out a bearish trade (or hedge) in the Japan fund.

Bearish Flow
Spreadtrum Communications (SPRD) is under fire and options on the Chinese chipmaker are seeing brisk trading Tuesday morning. The action is being attributed to a negative research report from Muddy Waters Research, which is becoming known for its bearish calls on specific Chinese companies. SPRD is under fire today and trading down $1.36 to $11.59. In options action, 85,000 calls and 30,000 puts traded in the name. Typical volume is about 5,000 contracts through midday. July 10 puts are the most actives. 14,000 traded. July 5, 8, 9, 11, 12 and 13 put options in SPRD are busy as well.

SPDR Homebuilders ETF (XHB) adds 15 cents to $18.07 after data released early showed home prices rising in 13 of 20 major cities during the month of April. One strategist doesn't seem convinced that the gains can last, however, and bought a 30,000-contract block of September 18 puts on the XHB for 87 cents per contract. The position looks opening (volume exceeds open interest) and comes ahead of Pending Homes Sales data tomorrow morning. KB Homes, one of the components of the fund, is due to release earnings early Wednesday as well.

Unusual Volume
iShares Japan Fund (EWJ) options volume is running 12X the (22-day) average, with 109,000 contracts traded and put activity accounting for 99 percent of the volume.

Nike (NKE) options volume is 5X the average daily, with 51,000 contracts traded and put volume representing 50 percent of the activity.

Seagate Tech (STX) options volume is running 2X the average daily, with 27,000 contracts traded and call volume representing 99 percent of the total volume.

Increasing options activity is also being seen in Lennar (LEN), Pulte Group (PHM), and KB Homes (KBH).

Implied Volatility Mover
Alcatel Lucent (ALU) implied volatility is moving higher amid a second day of high call volume. The focus yesterday was on December 6 call options. Shares are up 24 cents to $5.68 today and volume is 15,000 calls/375 puts. August and September 6 call options are the most actives. Implied volatility is up 15 percent to 44. There's no obvious news to explain the action, but the flow (call buying) over the past two days seems to reflect expectations that ALU will recapture the $6 level in the months ahead.