Sideline Money Flows In 07-01-2011

Cusick's Corner
Buyers prevail. The sideline money is flowing into the market and it did it early on the heels of inline data this morning. The market is trending nicely, above the 50-Day Moving Average, taking back most of the pullback from the April highs, and this latest move is happening in the face of mixed data and international financial turmoil. So it looks like if you're not long at this juncture, you are apparently wrong. But this market has run up fast, the sentiment shifted, Put/Call ratio is now below 1 and it moved very quickly from bearish to not bearish. Technically this boat is a bit one sided, in other words overbought. While the trade has flattened out due to the holiday weekend, I still think that it is worth looking at potential protection, not only because of the long weekend but also the fact that we are kicking off, unofficially with AA, earnings season in about a week. See you After Hours.

Stock market averages are rallying for a fifth consecutive day with help from manufacturing data Friday. Modest gains across the Eurozone and in the euro helped set the tone for steady early trading on Wall Street. Then, early gains were extended mid-morning after the Institute of Supply Management said its index of manufacturing activity increased to 55.3 in June, from 53.5 the month before. Economists were looking for the ISM to decline to 51.1. Other economic data was mixed. The University of Michigan said its consumer sentiment index fell to 71.5 at the end of June. Expectations were for it to hold steady at 71.8. Meanwhile, May construction spending fell .6 percent, compared to expectations of 0 percent. However, a second day of positive manufacturing data seemed to overshadow the day's other economic news and the Dow Jones Industrial Average is up 136 points at midday. The tech-heavy NASDAQ has rallied 32.1 points. CBOE Volatility Index (.VIX) is off 1.33 to 16.19. Trading remains active, but will probably slow this afternoon ahead of the three-day weekend. 4.6 million calls and 4.2 million puts traded through 12:00pm ET.

Bullish Flow
Las Vegas Sands (LVS) options are actively traded. Shares are up $1.38 to $43.59 amid strength in the sector after the Macau Gaming Inspection and Coordination Bureau reported that, compared to a year ago, revenues surged 52 percent in June. LVS is up on the news and options volume is impressive, as 84,000 calls and 20,000 puts traded in the casino-operator so far. The big trade of the day in LVS is a spread, in which the investor sold 16,000 July 44 calls and bought 18,400 August 50 calls. It's probably rolling activity, or selling the Jul 44 calls to open a new bullish position in August calls at a higher strike price. July options expire in two weeks.

General Motors (GM) call options were busy this morning ahead of auto and truck sales numbers. The automaker reported an 11 percent increase in June sales. Shares are up 27 cents to $30.63. July 31 calls are the most actives. 17,900 contracts have changed hands and, with three-quarters of the volume trading at the ask, it appears that buyers are driving the volume in those GM calls. The contract is now 1.2 percent out-of-the-money and, due to the exchange holiday Monday, has nine trading days of life remaining (after today).

Bearish Flow
The biggest options trade so far today is in the Powershares QQQ (QQQ) exchange-traded fund. The Qs is the ETF that holds the NASDAQ 100 stocks. Shares are up 62 cents to $57.67 and a 40,000 contract block of Aug 56 puts traded at 81 cents. The block was sold as part of a put butterfly. The strategist also bought 20,000 August 54 puts at 42 cents and bought 20,000 August 58 puts at $1.55. Therefore, they paid 35 cents per Aug 54 - 56 - 58 put butterfly spread and are targeting a move in the Qs back towards $56 through the August expiration, which is in 49 days. QQQ is on a five-day winning streak and is up 6 percent since last Friday.

MBIA (MBI) is up 35 cents to $9.04 and more than 10,000 January 7.5 puts have traded on the surety and title insurance company. The action includes lots of 100 and 200 contracts traded at the $1.18, $1.21 and $1.24 asking price. Open interest is 18,885 and so some of the action is possibly closing trades. Or, it might be put buying on concerns about the short-term outlook for MBI. Although shares are up more than 15 percent over the past few days, MBI shares fell nearly 5 percent on 6/28 after a New York Court of Appeals said policyholders can pursue claims against the company.

Unusual Volume
Eastman Kodak (EK) options volume is running 2X the (22-day) average, with 89,000 contracts traded and call activity accounting for 59 percent of the volume.

Corning (GLW) options volume is 2.5X the average daily, with 41,000 contracts traded and call volume representing 72 percent of the activity.

Dendreon (DNDN) options volume is running 3X the average daily, with 23,000 contracts traded and call volume representing 69 percent of the total volume.

Increasing options activity is also being seen in NASDAQ OMX Group (NDAQ), Xerox (XRX), and Eli Lilly (LLY).

Implied Volatility Mover
Eastman Kodak (EK) shares lost 52 cents to $3.06 after the International Trade Commission ruled against the company in a patent dispute against Apple and RIM. Kodak shares are under pressure and options volume is elevated. 62,000 calls and 46,000 puts traded in the name so far. Meanwhile, implied volatility has plummeted 53 percent to 54 now that this important event risk is in the past.