Market Has Gas in Tank 04-25-2011

Cusick's Corner
The market has a lot of gas in the tank if you take earnings as the catalyst. Keep an eye on the Volatility Index VIX. As a review, this index measures the implied volatilities of the front two months of the SPX, the cash settled S&P 500 index. The VIX has settled the last two session below 15 (which we have not seen in over 4 years) and could be flagging traders and investors one of two things -- the market is going to be in a grind until we can get further catalyst of this strong upside trend, or that this market is flashing a potential sell signal (we had a fake out in September and October of last year). Watch the Fed comments later this week for some guidance on the potential end of QE2. With protection cheap, this may be an excellent time to review your portfolio and review if insurance is prudent. See you After Hours.

Stock market averages are holding modest losses in a morning of slow trading Monday. Investors are bracing for a busy week of earnings news including reports from Ford Motor (F), Coca Cola (KO), and Exxon Mobile (XOM). Disappointing results from Johnson Controls (JCI) and Kimberly Clark (KMB) seemed to help set the tone for cautious morning trading today. Meanwhile, the only economic stat of the day was a report on New Home Sales, which showed improvement to an annual rate of 300,000 in March, from 270,000 the month before and better than the 280,000 that economists had expected. Action in the commodities markets continues to get some attention as well, with gold soaring to record highs and crude oil down 29 cents to $112 a barrel. Still, trading is quiet and orderly to start the week. The Dow Jones Industrial Average has traded in a 60-point range and is down 30 at midday. The tech-heavy NASDAQ is flat. The CBOE Volatility Index (.VIX) has added 1.10 to 15.79. Overall options volume is light today, with 4.1 million calls and 3.1 million puts traded through 12:30pm ET.

Bullish Flow
iShares Silver Fund (SLV) touched a new 52-week high after silver gained nearly 3.5 percent to $47.75 an ounce. SLV, which is the exchange-traded fund that owns the metal, has added 68 cents to $46.22. Meanwhile, options volume in the fund is approaching 1 million contracts. Investors are flocking to May call options with strike prices ranging from 37 to 60. May 37 puts are the most actives. More than 46,000 contracts have changed hands. Total options volume in the silver fund is 618,000 calls and 378,000 puts.

Sandisk (SNDK) is seeing heavy trading. Shares fell in afterhours trading Thursday after the company reported better-than-expected first quarter earnings, but offered in-line revenue guidance for the second quarter. However, shares moved higher Monday morning and are up 82 cents to $49.81 midday. In options action, 44,000 calls and 14,000 puts have traded in the Mipitas, CA memory chip maker. May 52.5 calls, which are now 7.3 percent out-of-the-money and expire in 25 days, are the most actives. 14,000 traded. May 50 and 55 calls are seeing brisk trading as well.

Bearish Flow
Waste Management (WM) puts were busy for a second day. As noted in Thursday's wrap, May 35, 37 and 38 puts saw interest late last week. Today, shares edged up 3 cents to $38.41. Options volume is 15,000 puts and 1,920 calls. Today, the October 32 puts, which are 16.7 percent out-of-the-money, are the most actives. 7,300 have traded. May 37 and July 33 puts are seeing interest as well. The two days of bearish or defensive trading in WM might be a play on earnings. The company is due to release results on the morning of April 28th.

iShares Emerging Markets Fund (EEM) is down 43 cents to $49.74 and the May 51 - 53 call spread in the ETF has traded more than 66,000 contracts. One investor sold the spread 22,000X at 42 cents and sold it again at 41 cents, 22,000X. They were selling the 51s and buying the 53s and probably betting that shares will hold below $51 through the May expiration. It might be closing trades, as there is substantial open interest in both contracts.

Unusual Volume
iShares Silver Fund (SLV) options volume is running 2.5X the (22-day) average, with 927,000 contracts traded and call volume accounting for about 61 percent of trades.

Sandisk (SNDK) options volume is 2X the average daily, with 53,000 contracts traded and call volume representing for 75 percent of the activity.

General Mills (GIS) options volume is running 3X the average daily, with 39,000 contracts traded and put volume accounting for 56 percent of the activity.

Increasing options activity is also being seen in Goodyear Tire (GT), Earthlink (ELNK), and SOHU.

Implied Volatility Mover
Akamai (AKAM) implied volatility is up amid heavy trading in the options market today. Shares have added 22 cents to $40.27 and options volume through midday includes 24,000 calls and 5,540 puts. May call options with strike prices ranging from 38 to 50 are seeing the most action. Meanwhile, implied volatility has risen 9 percent to 50, as some investors might be taking positions ahead of earnings. The company is due to release results on Wednesday.