Fed Chief Speaks Before Close 06-07-2011

Cusick's Corner
Not surprised with the bounce into the Midday -- it would be surprising if it garners any momentum. Fed Chief is speaking this afternoon, right at the close, but I doubt that he will douse any fuel on the markets, i.e. QE talk. I will watch the action into the close because that will be telling on how much the sellers want to press this market down. The 3yr note auction was nothing to write home about and the Bonds are still easing. Watch Consumer Credit, or lack thereof, see if the over leveraged consumer is really cutting back. See you After Hours.

Stock market averages are holding gains on a relatively slow news Tuesday. The only economic stat on the calendar is a report on Consumer Credit due out later this afternoon. However, Federal Reserve Chairman Ben Bernanke will come into focus when the head of the Central Bank gives a speech at 3:45pm ET. Recent economic data, including Friday's jobs report disaster, has been poor and there's some hope among investors that Bernanke will hint at another round of quantitative easing. Beyond that, there isn't much to guide the market action. Crude oil lost 90 cents to $98.11 per barrel and gold gave up $7.6 to $1,539.60. The dollar index is down .5 percent to 73.60. Meanwhile, the Dow Jones Industrial Average has added 65 points and the tech-heavy NASDAQ gained 5.75 points. The CBOE Volatility Index (.VIX) lost .70 to 17.79. Trading in the options market is relatively slow and remains somewhat defensive, with 3.9 million calls and 3.9 million puts traded through 12:30pm ET.

Bullish Flow
Advanced Micro Devices (AMD) shares are down 4 cents to $7.75 and options on the chipmaker are active through midday Tuesday. 17,000 calls and 12,000 puts traded so far. The top trades of the day are part of a combination trade, in which the investor apparently bought 7,500 October 10 calls at 18 cents and sold 7,500 October 7 puts. They collected 26 cents on the combo. It's not a straight bullish play, as the position was apparently tied to 500K shares at $7.75. Still, it seems to reflect expectations that AMD is more likely to move higher rather than lower the through the October expiration. October 8 and 9 calls are seeing interest as well.

The PowerShares Bullish Dollar Fund (UUP) is down 12 cents to $21.03 and has now lost 3.5 percent since March 23. Some investors seem to view the recent weakness as an opportunity for bullish trades. The biggest options trades in the exchange-traded fund today is a 4,400-contract block of January 22 calls at 46 cents on the International Securities Exchange, where sentiment data indicate that a customer bought-to-open a new position. Volume in the contract, which is almost $1 out-of-the-money, is more than 22,000. UUP is an exchange-traded fund that tracks the performance of the dollar against a basket of other foreign currencies. It is heavily influence by the euro and yen.

Bearish Flow
Ctrip.com (CTRP) is down 11 cents to $42.50 and puts on the Shanghai, China travel services company are busy for a second day. June and September 43 puts were actively traded yesterday. Total OI in Ctrip put options increased by 5,936 contracts after yesterday's action (compared to +580 calls). Today, the focus has turned to the June 40 puts. The top trade is a 2375-block at the 45-cent asking price. Total volume is 7,639 against 1,376 in open interest. The June 40 put is 5.9 percent out-of-the-money and expires in 10 days. Some investors appear to be buying the contract on concerns about additional downside in CTRP in the near-term.

A massive put spread trades in SPDR 500 Trust (SPY) Tuesday morning. Shares are up 72 cents to $129.77 and one investor sells 80,000 July 120 puts at 65 cents. They also bought 40,000 July 112 puts at 18 cents and bought 40,000 July 128 puts at $2.34. In other words, they initiated a July 112 - 120 - 128 put butterfly spread at $1.22, 40000X. Since the middle strike (or body) of the butterfly is 7.5 percent below the current market price of the ETF, this is a bearish play on S&P. An institutional investor probably took the position as a short-term hedge.

Unusual Volume
iShares Japan Fund (EWJ) options volume is running 2.5X the (22-day) average, with 44,000 contracts traded and call volume accounting for about 95 percent of trades.

Temple Inland (TIN) options volume is 34X the average daily, with 37,000 contracts traded and put volume representing for 51 percent of the activity.

UPS options volume is running 3X the average daily, with 36,000 contracts traded and call volume accounting for 65 percent of the activity.

Increasing options activity is also being seen in Best Buy (BBY), JDS Uniphase (JDSU) and Sprint (S).

Implied Volatility Mover
Lorillard (LO) shares are down and implied volatility for a second day. Shares sank Monday on news a court has ruled to allow a tobacco racketeering lawsuit to proceed. LO is down another $2.30 to $97.60 Tuesday and off 9.4 percent on the week. Options volume includes 8,410 puts and 7,610 calls. Implied volatility jumped 5 percent to 56.