Window Dressing 06-27-2011

Cusick's Corner
Window dressing -- the grind to the upside could be a combination of some end of the quarter window dressing with a twist of shorts being squeezed. The market has again held critical support, 1256 on the S&Ps, and found legs to bounce, plus Tech is leading again. Now I take this all with a grain of salt so early in the trading week, especially going into the long 4th of July weekend and the Austerity vote in Greece. One market that I did review over the weekend was Silver, SIU11/SLV, which is challenging the 33 level and is also the uptrend support line. Silver has been parabolic, both to the up and downside, and is a good measure of what happens in the tech segment and specifically chips, SMH, which have been under pressure the last month, much like silver. Watch this relationship, if silver breaks support then watch the chips and see how they react. See you After Hours.

Stock market averages are higher despite weak economic data Monday. According to a report released before the opening bell, personal spending was unchanged last month. Economists were looking for a .1 percent increase. Meanwhile, incomes rose .3 percent and .1 percent less than expected. Yet, Microsoft (MSFT) shares gained 4 percent and leading the Dow Jones Industrial Average to higher ground after a Supreme Court struck down a law that banned sales of violent video games. Microsoft had been opposed to the regulation. Meanwhile, BofA (BAC) shares are up 2.7 percent after Rochdale Securities LLC analyst Richard Bove said shares of the bank are currently undervalued. BAC is one of twenty-seven Dow stocks moving higher, only three are in the red, and the industrial average is up 102 points at midday. The tech-heavy NASDAQ gained 31. CBOE Volatility Index (.VIX) is down .40 to 35.41. Overall options volume is light, with 3.6 million calls and 3.3 million puts traded through 12:45pm ET.

Bullish Flow
Activision Blizzard (ATVI) added 12 cents to $11.46 after a court struck down a law that blocks the sale of certain types of violent video games. ATVI moved higher on the news and options volume in ATVI is 1,780 calls and only 57 puts through midday. July 12 calls, which are now 5.2 percent out-of-the-money and expiring in 18 days, are the most actives. 1,625 traded and, with 82 percent trading at the ask, it appears that buyers are driving the flow in those out-of-the-money calls - possibly looking for a rally to send shares beyond $12 over the next few weeks. Shares of video game makers Electronic Arts (ERTS) and Take Two (TTWO) shares also edged higher in reaction to the news Monday morning.

DirectTV (DTV) shares are up after being highlighted positively over the weekend at a financial news web site. According to Barron's online, "the largest provider of satellite television in the U.S., is storming the fast-growing markets of Argentina, Brazil and Mexico." DTV is up $1.44 to $49.19 and options volume through midday is 4,760 calls and 355 puts. July 49 calls, which are now 19 cents in-the-money and expiring in less than three weeks, are the most actives. 3,570 traded. August and September 52.5 calls are seeing interest as well.

Bearish Flow
Lorillard (LO) put options are busy today after a Supreme Court rejected tobacco companies' appeal in the state of Louisiana. Shares hit a morning low of $108.99 and were recently down 92 cents to $109.57. Meanwhile, 34,000 puts and 7,560 calls traded on the tobacco company through midday. September 90 puts are 17.9 percent out-of-the-money and are the most actives. 5,840 traded. July 100, 105 and 110 puts are busy as well. The action seems to include a mix of buying and selling. Implied volatility is down 30 percent to 34.5 now that the decision is out and the risk has passed.

Home Depot (HD) is up a nickel to $35.13 and the top options trade in the home improvement retailer today is a 7,400-contract block of January 40 calls traded on the 65-cent bid. The contract is 13.9 percent out-of-the-money and 9,513 contracts have now traded. In addition, the Jan 40 call on Home Depot has 33,362 in open interest, which is the biggest open position in the name today. Some investors might be selling these calls, closing positions, and giving up hopes for a rally beyond $40 through the January expiration. Although HD is up about 5 percent since June 10, it has not performed well in recent months and is down 10.8 percent from the highs seen in late-February.

Unusual Volume
XCO Resources (XCO) options volume is running 5.5X the (22-day) average, with 116,000 contracts traded and put activity accounting for 65 percent of the volume.

Lorillard (LO) options volume is 2.5X the average daily, with 40,000 contracts traded and put volume representing 82 percent of the activity.

YRC Worldwide (YRCW) options volume is running 9X the average daily, with 37,000 contracts traded and call volume representing 56 percent of the total volume.

Increasing options activity is also being seen in Human Genome Sciences (HGSI), Expedia (EXPE), and Gold Fields (GFI).

Implied Volatility Mover
Netlogic Systems (NETL) implied volatility is up amid increasing put volume. Shares of the Santa Clara, CA memory chip maker have added 26 cents to $39.39. Meanwhile, option volume includes 14,000 calls and 670 puts. The top trade is July 34, 35 and 36 puts are seeing heavy trading. It looks like downside put buying implied volatility is up 10 percent to 38.