Retail is Focus Today 07-06-2011

Cusick's Corner
The market is trading off the lows of the day and Retail, XRT, has been the focus today in front of a plethora of data and earnings which may be potentially volatile because the strength of the consumer has been under pressure due to energy price fluctuations and lackluster employment. We'll get more clarity about unemployment at the end of the week. I will continue to monitor retailers and retail banks, KRE, which have been on the move today. See you After Hours.

Stock market averages battled back from early weakness and are holding modest gains midday Wednesday. The underlying tone of trading on Wall Street was cautious in morning action after Moody's late-Tuesday cut Portugal's credit rating to junk. The move weighed on European stock benchmarks today, the euro slipped against the buck, and the European Debt Crisis was back in focus. Later, the ISM Services Index was released and showed a decline to 53.3 in June, from 54.6 the month before and below economist estimates of 54. Yet, the market showed little reaction to the data and, instead, some late-morning buying interest helped lift the Dow Jones Industrial Average and the NASDAQ into positive territory. Through midday, the Dow has now added 55 points and the NAZ gained 9.7. CBOE Volatility Index (.VIX) hit a morning high of 17.08 and is now up .28 to 16.44. Trading in the options market is light today, with 3.7 million calls and 3.9 million puts traded through 12:35pm ET.

Bullish Flow
Target (TGT) adds 81 cents to $48.36 and today's options volume in the retailer is 11,000 calls and 5,065 puts through midday. July 49 calls, which are 1.3 percent out-of-the-money and expire in 9 days, are the most actives. In addition, of the 4,050 contracts traded, two-thirds have traded at the asking price. Increasing interest at the ask seems driven by call buyers. July 47 and 50 calls are busy as well. Bullish trading in Target might be a play on June same store sales numbers. Many individual retailers release their results Thursday morning.

SPDR Financials (XLF) loses a dime to $15.39 and one strategist bought a September 16 - 17 call spread on the exchange-traded fund at 23 cents, 24000X. That is, they bought 24,000 September 16 calls at 28 cents and sold 24,000 September 17 calls at a nickel. The spread looks like a bullish play on the financial sector that makes its best profits if XLF rallies to $17 or more through the September expiration, which represents at 10.5 percent gain over the next 72 days. SPDR Financials is one of nine Select Sector Funds that collectively hold the S&P 500 components. XLF holds all of the financial-related names.

Bearish Flow
Xerox (XRX) adds 6 cents to $10.63 and options volume is running 2.5X the average daily, apparently being driven by in-the-money call writers. The top trade is 6,993 January 2013 calls at the 10 line, traded on the $1.75 bid, which looks like a liquidating sale. 11,110 contracts have traded against 28,350 in open interest. July and January 10 calls are also seeing volume on the bid. $10 strike call options on Xerox are 63 cents in-the-money and some investors are possibly closing positions after a 13 percent gain in XRX shares since June 10. That is, they might see limited upside after the run higher and are closing out bullish positions.

Intel (INTC) adds 33 cents to $22.77 and options on the chipmaker are actively traded today. Volume is 55,000 calls and 37,000 puts through midday. The top trade is a strangle, in which the investor sold 15,000 July 22 puts at 10 cents and sold 15,000 July 23 calls at 10 cents. Therefore, they collected 23 cents per July 22 - 23 strangle. It's not necessarily a bullish or bearish play. Rather, it seems to be a bet that shares will hold between $22 and $23 through the expiration, which is in nine days.

EMC options volume is running 2.5X the (22-day) average, with 55,000 contracts traded and put activity accounting for 88 percent of the volume.
Accenture (ACN) options volume is 9X the average daily, with 51,000 contracts traded and put volume representing 92 percent of the activity.
General Mills (GIS) options volume is running 4.5X the average daily, with 24,000 contracts traded and call volume representing 96 percent of the total volume.
Increasing options activity is also being seen in Lowe's (LOW), Xerox (XRX), and Blackstone Group (BX).

Implied Volatility Mover
Implied volatility in Zagg Inc (ZAGG) is elevated amid active trading in options on the retailer. Shares are under pressure, down 91 cents to $12.82. Options volume in ZAGG is 14,000 calls and 13,000 puts. Typical volume through midday is about 4,500 contracts, according to Trade Alert. Meanwhile, implied volatility in Zagg options is rallying and elevated, up 16 percent to 133, as some investors appear to be bracing for a big move in shares in the days/weeks ahead.