Bottom-Picking - Leave It to the Proctologists 06-16-2011

Cusick's Corner
I am not going to try to pick a bottom here but the landscape of the market is bearish. This move to the downside has potentially raised consumer hopes that this recent pullback in crude might (and I stress MIGHT) be reflected at the pump but I am not holding my breath. The equity and commodity markets cannot seem to hold any rally attempt and technicians are monitoring the 200 SMA, watch 1254 on the September S&P Futures for a breach of critical long-term support levels. Bonds and the Buck keep outdoing themselves and the flight to quality is in play, especially since the data came in as expected this morning. If the market breaks critical support, new lows could be seen quickly and the safety trade could pick up even more. I also want to see if the big bid that I saw yesterday in the S&Ps resurfaces, we are right at the levels where I saw those buyers come in and support the market. See you then.

Stock market averages are rebounding from steep losses suffered Wednesday on mixed economic data and amid busy trading due to the options expiration. After a 179-point slide in the Dow Jones Industrial Average the day before, the underlying tone of trading remained cautious early Thursday. Weekly jobless claims came into focus before the opening bell after the Labor Department said that filings for benefits declined by 13,000 to 414,000 in the period ended June 11. Economists were looking for a smaller drop, to 420,000. A separate report showed housing starts increasing by 19,000 to 560,000 in May, which was also better than the 547,000 that was expected. However, there was more bad news from the manufacturing sector after the Philadelphia Fed Survey plummeted to -7.7 in June, from 3.9 the month before and significantly worse than the 9.0 reading that was expected. Yet, after losing 673 points month-to-date, the Dow Jones Industrial Average found some morning strength and is up 81 points at midsession. The NASDAQ has recaptured 7 of the 47.3 points lost yesterday. CBOE Volatility Index (.VIX) is up .14 to 21.46 and trading is active due to the upcoming quadruple witch expiration, with 6.3 million calls and 5.5 million puts traded through 1:00pm ET.

Bullish Flow
Medivation (MDVN) shares are up 35 cents to $21 and options volume in the name includes 41,000 call options. By way of comparison, 235 puts have changed hands in the San Francisco-based biotech. Most of the activity is due to one spread trade, in which the investor sold 19,800 June 7 calls at $14.20 per contract and bought 19,800 July 13 calls for an average of $8.425. Notice that both of these contracts are deep in-the-money and that the June options expire at the end of the week. So, the spread is likely rolling of a winning position from June to July and up in strike prices. MDVN has been performing well lately, up 38.3 percent year-to-date. By opening a position in July, the strategist is probably taking the view that the advance will continue over the next four weeks.

Cisco Systems (CSCO) shares have added 23 cents to $15.06 and a noteworthy trade in the networking giant today is a bullish risk-reversal in the long-dated 2013 puts and calls. In this strategy, the investor bought 10,000 January [2013] 20 calls and sold 10,000 Jan 10 puts, paying 23-cent net debit for the combo. The stock price is roughly midway between the two strike prices and this strategist is probably taking the position on hopes shares will perform better in the second half of 2011 and into 2012. CSCO shares are down 26 percent so far this year.

Bearish Flow
PowerShares QQQ (QQQ), which is the exchange-traded fund that holds the NASDAQ 100 names, is up 3 cents to $54.32 and an interesting four way spread traded in the ETF today. In this trade, the options strategist sold 10,000 July 55 - 52 put spreads at $1.06. They also bought 10,000 September 52 - 49 put spreads at 72 cents. Therefore, they collected 34 cents on the package and are possibly rolling a position from July to September, and down in strike prices. The Qs have had a rough stretch in the past few weeks and are down nearly 7 percent month-to-date. Today's spread trader appears to be bracing for additional losses through mid-September.

Ford Motor (F) puts are busy today. Shares are down 23 cents to $12.92. Meanwhile, 65,000 puts and 37,000 calls traded on the automaker. A lot of the activity appears to be expiration-related. June 13 puts, which expire after tomorrow, are the most actives. 31,410 contracts changed hands. The contract is now 8 cents in-the-money and some investors are likely closing positions and rolling to July 13 puts, which have traded 11,200 contracts. The top trade in Ford today is a June - July 13 put spread bought at 36 cents, 2100X.

Unusual Volume
Harbin Electric (HRBN) options volume is running 5.5X the (22-day) average, with 90,000 contracts traded and put volume accounting for about half of trades.

Medivation (MDVN) options volume is 56X the average daily, with 41,000 contracts traded and call volume representing 100 percent of the activity.

Finisar (FNSR) options volume is running 4X the average daily, with 32,000 contracts traded and put volume accounting for 59 percent of the activity.

Increasing options activity is also being seen in Lorillard (LO), Computer Sciences (CSC), and Cemex (CX).

Implied Volatility Mover
CBOE Volatility Index (.VIX) is edging higher despite a 5.6-point gain for the S&P 500 Index (.SPX). The market's so-called "fear gauge" often falls when the stock market averages move to higher ground. Yet, after closing at two-month highs yesterday, VIX is up another .19 to 21.51. The options expiration might be affecting trading. Since today is the last day to trade SPX June options, trading is heavy in the index. VIX tracks the expected volatility priced in those options. Meanwhile, trading in the VIX pits is active as well. 337,000 calls and 69,000 puts on the volatility index so far.