Claims Data Puts Brakes on Run But Market Holds 04-21-2011

Cusick's Corner
Earnings continue to boost the market into the Midday. The Claims data, 403K, did put the brakes on the run from overnight but the market has held. The volume has been lighter than average at this stage but that might be because many desks are clearing out for the long weekend. The Buck, UUP, is still under pressure which has been a big catalyst for commodities, JJG/USO. The action in the Dollar has also increased bullish activity in the Emerging Markets, EEM. Keep an eye on the volume into the close, see you After Hours.

Stock market averages are holding gains, but weak economic data held the rally in check Thursday. Apple Computer (AAPL), Qualcomm (QCOM), and Traveler's (TRV) are among the names seeing post-earnings gains. On the economic front, data released before the opening bell showed jobless claims falling by 13,000 to 403,000 last week. Economists were looking for a decline to 390,000. Later, the Philadelphia Fed Survey of manufacturing activity printed at 18.5, which was a big drop from the 43.4 in March and also much worse than the 33.0 that economists had expected. However, volume and volatility is light, as many investors have already set their sights on the three-day weekend. The Dow Jones Industrial Average has added 36 points and tech-heavy NASDAQ added 15. The CBOE Volatility Index (.VIX) is down another .41 to 14.66. Overall options volume is slowing ahead of the weekend, with 4.8 million calls and 4.3 million puts traded through 12:30pm ET.

Bullish Flow
Baidu.com (BIDU), the Chinese Internet company, has battled back from early weakness and is trading up 69 cents to $150. Meanwhile, the weekly options (which expire after today) are seeing interest Thursday. The calls at the 150 line are the most actives. 5,644 have now traded. Open interest is 5,208 and the market is now 48 to 52 cents. If BIDU settles at $150 at the closing bell today, the contract is at-the-money and expires worthless. On the other hand, if it moves up from current levels, the contract will be in-the-money and have intrinsic value equal to the stock price minus 150. Players are likely buying and selling the contract and speculating on how BIDU might move in afternoon trading today.

Yahoo (YHOO) shares rallied around earnings news yesterday, but are trading down 2 cents to $16.85 midday Thursday. A noteworthy options trade in the Internet search giant today was a combination, in which the investor bought 9,500 July 18 calls at 67 cents and sold 9,500 October 16 puts at $1.19. This bullish risk-reversal is possibly a bet that shares will rally beyond $18 through the July expiration. If it falls below $16 through October, the put seller will face assignment and be asked to buy the stock at that price.

Bearish Flow
The biggest options position that has traded so far today is in the SPDR 500 Trust (SPY). The so-called "SPYders" are trading up 63 cents to $133.73 and one investor sold a block of 81,000 SPY May 130 puts at 89 cents per contract. The same investors also bought 30,000 June 133 puts and sold 15,000 June 123 puts. It is likely that the investor was rolling a position or a hedge. That is, they sold-to-close the position in May 130 puts, which are now $3.73 out-of-the-money, to open a new position in the June 133 - 123 (2X1) put ratio spread.

Equity Residential (EQR) puts are seeing interest ahead of earnings. Shares of the Chicago-based Real Estate Investment Trust [REIT] are up 20 cents to $57.60 and it looks like some investors are scooping up October 40 puts for 50 and 55 cents per contract. 8,800 have changed hands. The contract has zero open interest and so the action looks like new positioning. It's interesting because these puts are more than 30 percent out-of-the-money. Some shareholders might be hedging their bets ahead of earnings, which are due out on April 27.

Unusual Volume
TEVA options volume is running 5.5X the (22-day) average, with 119,000 contracts traded and call volume accounting for about 63 percent of trades.

Technology Select Sector Fund (XLK) options volume is 5X the average daily, with 77,000 contracts traded and put volume representing for 97 percent of the activity.

F5 Networks (FFIV) options volume is running 2X the average daily, with 59,000 contracts traded and call volume accounting for 59 percent of the activity.

Increasing options activity is also being seen in Xerox (XRX), Sandisk (SNDK), and Amgen (AMGN).

Implied Volatility Mover
Sandisk (SNDK) implied volatility is up amid increasing volume in the options market. Shares have added 1.2 percent to $49.50 ahead of earnings, which are due today after market. 42,000 calls and 7,790 puts have traded in SNDK ahead of the news. May 52.5 and 55 calls are the most actives. Some investors have been buying the spread. Meanwhile, implied volatility is up 8 percent to 43.5.