Higher Beta Leading the Way 06-20-2011

Cusick's Corner
The market is experiencing a nice oversold squeeze to the upside which is the type of action that one can expect now, it's choppy trading while Greece and the Fed work out austerity plans and their next steps, if any (for the Fed there may be additional QE, Quantitative Easing). I am watching Large Cap Tech names like APPL holding back the space but Small Caps, like IWM higher beta stocks, are firming and leading the charge to the upside. If the rally can stay broad based, this could be a nice bounce. See you After Hours.

Stock market averages are holding gains on a relatively quiet day of trading Monday. With no economic data or significant earnings to guide the morning action, some of the focus was on Europe. The euro is steady against the dollar after finance ministers said that Greece has two weeks to approve strict austerity measures in order to secure another 12 billion euros in emergency loans. Stock market averages finished with modest losses across the Eurozone. On Wall Street, however, Walmart (WMT) is helping the Dow Jones Industrial Average after the retailer won a sex-discrimination lawsuit. Pfizer (PFE) is also among the Dow's winners after the FDA approved the company's tamper-resistant pain drug. In all, twenty-six of the Dow thirty are higher and the industrial average is up 86 points. The tech-heavy NASDAQ added 19. The CBOE Volatility Index (.VIX) lost 1.62 to 20.23. Overall options volume is running about the typical levels, with 4.3 million calls and 3.6 million puts traded through 12:30pm ET.

Bullish Flow
Yahoo (YHOO) is seeing relative strength and increasing call volume. Shares of the Internet giant are up 4 percent to $15.29. Options action includes 55,000 calls and 7,620 puts. July 16 calls are 4.6 percent out-of-the-money and are the most actives in Yahoo today. More than 20,000 contracts traded. July 15, October 20, and July 16 calls are seeing active trading as well. Yahoo shares have been beaten down in recent weeks. The stock is almost 19 percent from the 52-week highs seen in early-May. Some investors are possibly taking positions in calls in anticipation of a rebound in the weeks ahead. July options expire in 25 days. The Wall Street Journal has a report attributing the call activity to a potential deal related to the company's interest in Alipay, an online payment unit.

Harbin Electric (HRBN) is rallying on news the company is being bought out by Tech Full Electric Company. The stock has been under pressure in recent weeks and saw a volatile move lower last week after a research firm had published a cautious note about the Chinese industrial equipment company. Prior to today, HRBN was down 49 percent month-to-date. Today, however, HRB N is up $4.92 to $13.31. July 15 calls, which are 12.9 percent out-of-the-money, are the most actives. December 15 calls are busy as well. Some investors are probably taking positions on the view that a merger will go through at a price higher than $15. Total volume is 72,000 calls and 28,000 puts now traded in the name.

Bearish Flow
IBM adds 50 cents to $164.94. Options volume in the computer maker today is 32,000 puts and 6,830 calls. The top trades are part of a spread. In this strategy, the investor sold 11,500 July 150 puts at 37 cents. The same player also bought 10,000 August 150 puts at $1.55. The spread is possibly rolling activity - or closing out a bearish position in July options to open a similar one in August. On the other hand, it might be a calendar spread, or a bet that shares will hold above $150 through the July expiration in 25 days, but then fall through the August expiration in 60 days. A shareholder might have initiated the trade as a hedge.

Goldman Sachs (GS) shares are down after Citigroup analysts lowered their price target on the stock to $180 from $200. Shares are down $1.53 to $135.80. Options volume includes 10,000 calls and 9,200 puts on GS through midday. The top trades of the day were part of a combo, in which the investor apparently sold 1,000 January 150 calls at $6.05 to buy 1,000 January 120 puts at $6.35. They paid 30 cents for this bearish risk-reversal and appear to be bracing for additional volatility in the stock through January 2012. A shareholder might have bought the combo to "collar" a stock position.

Unusual Volume
Harbin Electric (HRBN) options volume is running 3.5X the (22-day) average, with 102,000 contracts traded and call volume accounting for 72 percent of the volume.

Skyworks Solutions (SWKS) options volume is 6X the average daily, with 49,000 contracts traded and put volume representing 68 percent of the activity.

Xerox (XRX) options volume is running 12X the average daily, with 44,000 contracts traded and call volume accounting for 50 percent of the activity.

Increasing options activity is also being seen in Adobe (ADBE), BJ Wholesale (BJ), and Nike (NKE).

Implied Volatility Mover
Skyworks Solutions (SWKS) implied volatility is higher today after Deutsch Bank analysts downgraded the stock to Hold from Buy. 38,000 puts and 11,000 calls traded in the chipmaker. Trading is very heavy in August puts with strike prices ranging from 17.5 to 30. The action seems to include a mix of buying and selling, as well opening and closing trades. Shares are down 93 cents to $22.23 and the heavy trading has implied volatility up 10 percent to 54.