Window Dressing 06-30-2011

Cusick's Corner
The shopping continues today. Seems like the big money managers are continuing to improve their window, dressing up their end of the month to keep the statement in the green. This is money that is already in the market, but this recent move has scared the managers and hedge funds that have been cash heavy, forcing them to jump into the market. I have written before that you need a select a control, barometer, or benchmark that you want your portfolio's performance to beat. Right now under invested, lagging fund managers are scrambling to get vested. This is the current catalyst but we need to watch these recent buyers, headlines impact these bids rather quickly and using spreads can strategically help mitigate premium and volatility fluctuations. See you After Hours.

Stock market averages are broadly higher with help from stronger-than-expected economic data Thursday. The tone of trading on Wall Street remained positive early after European stock benchmarks posted another day of gains. UK's FTSE helped pace the advance with a 1.5 percent gain. Meanwhile, the euro is up another .6 percent on the dollar after Greek parliament passed a second austerity bill designed to prevent debt default. In the US, focus shifted to the Chicago PMI at 10:00am ET. The gauge of regional manufacturing activity showed a surprise jump to 61.6 in June, from 56.6 the month before and significantly better than the 54 that was expected. The report holds some sway, as it comes the day before ISM releases its gauge of nationwide manufacturing activity Friday. End-of-quarter window dressing is a factor today as well. Consequently, the Dow Jones Industrial Average has added 137 points and the tech-heavy NASDAQ is up 31.1. CBOE Volatility Index (.VIX) is off 1.17 to 16.10. Trading is active as players close the books on the second quarter. 4.3 million calls and 4.1 million puts traded through 12:00pm ET.

Bullish Flow
NetApp (NTAP) shares are rallying and options on the data storage software maker are busy today. NTAP has added $2.69 to $52.65 and options volume is 2X the average daily. 16,000 calls and 5,630 puts traded in NetApp so far. July 52.5 calls, which were 5.1 percent out-of-the-money prior to today, are the most actives. 6,100 of these now in-the-money calls have traded. July 50 and 55 calls are busy as well. The July contract expires two weeks from tomorrow and the heavy trading in these short-dated options, and the rally in NetApp shares, is being attributed to comments made at the company's Analyst Day. The event is happening today.

First Solar (FSLR) is rallying today after the company secured conditional loan guarantees worth $4.5 billion from the Department of Energy. Shares of the solar-panel manufacturer are up $8.17 to $137.59. Meanwhile, options volume is 27,000 calls and 23,000 puts. Typical options volume in FLSR at midday is 13,000 contracts. July 140 calls, which are now 1.8 percent out-of-the-money, are the most actives. 5,240 have changed hands. July 155 and August 145 calls are seeing brisk trading as well. On the put side of the options chain, the July 135s and August 125s are the most actives.

Bearish Flow
Select Sector Basic Materials ETF (XLB) was the subject of a sizeable bearish trade today. Shares are up 41 cents to $39.31 and an investor bought 20,000 XLB August 37 puts at 59 cents. They also sold 40,000 August 34 puts at 22 cents. Therefore, they paid 15 cents for this 1X2 put ratio spread. Since volume exceeds open interest in both contracts, the spread appears to be a new position. If so, it's a bearish play that makes its best profits if shares fall to $34 at the August expiration, which represents a 13.5 percent decline in XLB shares over the next 50 days. The fund holds all of the basic material names from the S&P 500, including Alcoa, Dow Chemical, Monsanto and a host of others.

CF Industries (CF) is under pressure today amid sector weakness after USDA crop data sent the prices of many agricultural commodities sharply lower Thursday morning. CF, which manufacturers fertilizer products, is down $6.30 to $143.05. Options volume is 11,000 calls and 8,100 puts, which is 2.5X the typical volume for the name. July 150 calls, which have fallen $6.95 out-of-the-money and expire in 15 days, are the most actives. 1,915 traded. Since 72 percent of the volume has been on the bedside of the bid-ask spread, it appears that call sellers are driving the flow. Similar action is being seen in July 140 calls.

Unusual Volume
Hewlett Packard (HPQ) options volume is running 2X the (22-day) average, with 62,000 contracts traded and call activity accounting for 44 percent of the volume.

First Solar (FLSR) options volume is 2X the average daily, with 49,000 contracts traded and call volume representing 54 percent of the activity.

Dendreon (DNDN) options volume is running 3.5X the average daily, with 24,000 contracts traded and put volume representing 58 percent of the total volume.

Increasing options activity is also being seen in Nordstrom (JWN), DR Horton (DHR), and Tellabs (TLAB).

Implied Volatility Mover
USEC (USU), the uranium producer, implied volatility is easing. Shares are rallying today, up 7.5 percent to $3.24, after the company reached an agreement with strategic investors. The move is expected to help the company fund a plant project in Piketon, OH. Shares are up and options volume in USU through midday is 9,540 puts and 2,275 calls. Put sellers appear to be active in the name, as implied volatility in USU options is down about 19 percent to 112.5.