Market Needs Spinach 06-09-2011

Cusick's Corner
Market is trying to garner strength but there is a lot of overhead resistance. News was a mixed bag today but the market has bounced back some, plus the VIX dropped again and is trading around 17. See you After Hours.

Stock market averages are rebounding from six-days of losses despite a round of mixed economic news Thursday. Before the opening bell on Wall Street, the Labor Department reported that jobless claims increased by 5,000 to 427,000 in the first week of June. Economists were looking for an increase of just 1,000. A separate report showed the nation's trade deficit at $43.7 billion in April. Economists were expecting the deficit to widen to $48.7 billion from $48.2 billion. A third report released later was a report on wholesale inventories, which was up .8 percent in April and not far from economist estimates. Stocks opened steady on the data and a modest rally lifted the major averages through midday. After a six-fast 521-point slide, the Dow Jones Industrial Average has rebounded for a 117-point gain. The tech-heavy NASDAQ added 12.4. Crude oil gained $1.19 to $101.93 and gold added $8.10 to $1,546.80. CBOE Volatility Index (.VIX) slipped 1.36 to 17.43. Trading in the options market is active and remains somewhat defensive, with 4 million calls and 4 million puts traded through 12:30pm ET.

Bullish Flow
An interesting three-way trade surfaced in Bank of America (BAC) today. Shares, which notched two year lows of $10.50 yesterday, are trading up 13 cents to $10.67. In morning options action, an investor sold 25,000 August 9 puts at 14 cents to help finance an August 11 - 14 call spread at 44 cents, 25,000. The spread, for a net debit of 30 cents, is a bullish play on the bank because it makes its best profits if shares rally to $14 through the August expiration. The upside breakeven at expiration is at $11.30 (excluding transaction costs). In addition, by selling August 9 puts, the strategist is also stating that they're willing buyers of the stock at $9 per share.

Titanium Metals (TIE) is attempting to rebound from a one-month 18 percent slide. Shares are up 38 cents to $17.37 through midday. Meanwhile, options volume in the Dallas, TX metals company includes 5,215 calls and 325 puts. July 18 calls, which are 3.6 percent out-of-the-money, are the most actives. June 18 calls, which expire at the end of next week, are busy as well. No news on the stock, but it appears that some investors are taking positions in upside calls on hopes today's rebound can continue in the days ahead.

Bearish Flow
Texas Instruments (TXN) has battled back from early weakness ands is up 28 cents to $32.95. Shares dipped below $31 in afterhours trading Wednesday when the company offered a mid-quarter update. At that time, the chipmaker lowered second quarter revenue and earnings estimates. TXN options are actively traded on the news. 8,580 calls and 17,000 puts traded so far. June 33 puts, which are now nearly at-the-money and expiring in 8 days, are the most actives. 4,420 traded. June 32, July 32, and July 33 puts are seeing brisk trading as well. Some investors were apparently buying ATM and out-of-the-money puts in early trading, but the flow has turned a bit less bearish as shares rallied, with a mix of buying and selling of TXN put options.

iShares Real Estate ETF (IYR), which holds a basket of real estate investment trusts [REITS] and real estate companies, is trading down 55 cents to $59.91. In options action, 62,000 puts and 17,000 calls have traded on the fund. The top trade hit early in the day after an investor bought 25,000 July 58 puts at $1.15 per contract. 36,243 now traded against 18,229 in open interest. Some investors appear to be buying downside puts amid relative weakness in the real estate sector.

Unusual Volume
SINA options volume is running 2X the (22-day) average, with 74,000 contracts traded and put volume accounting for about 53 percent of trades.

Harbin Electric (HRBN) options volume is 5X the average daily, with 48,000 contracts traded and call volume representing for 58 percent of the activity.

Ciena (CIEN) options volume is running 2X the average daily, with 41,000 contracts traded and put volume accounting for 52 percent of the activity.

Increasing options activity is also being seen in Texas Instruments (TXN), Goodyear Tire (GT), and Eldorado Gold (EGO)

Implied Volatility Mover
Implied volatility in the China Biotics (CHBT) is elevated, as shares give up 50 cents, or 8.8 percent, to $5.09. Shares jumped 15.5 percent the day before. The volatility in shares of the Chinese ag company comes ahead of earnings. Results are expected in the next week or two. Trading in the options market seems somewhat defensive ahead of the results. 13,000 puts and 4,550 calls traded in China Biotics today. Meanwhile, implied volatility in CBHT options is up 3 percent and very elevated at 220.