Using the Euro as a Barometer 06-07-2010

Cusick’s Corner
We are experiencing some whippy action into the Midday, but it has been within Friday’s range. The lows are continually being challenged throughout today’s session, but there’s no major follow through, indicating that the potential for a late push to the upside could possibly be in the making. After reviewing a lot of data over the weekend, there are really two conclusions that could potentially be playing out here -- the market is readying itself for new potential lows (because there are no more safety blankets left and the Funds have very little cash), or that the lack of complacency presents a nice scale-in long point. Watch the new short-term strength in the Euro, E7M10, as a decent barometer of strength in the Equity markets. See you After Hours.

Stocks are trading mixed on a very slow news day Monday. With no economic news or earnings of significance to guide the market action, the early focus was back on overseas trading and the euro. Consequently, after a 323-point slide, the Dow Jones Industrial Average opened a bit higher after markets across Europe held steady and the euro edged up .0032 to 1.1925 against the buck. From that point forward, market action has been slow. The Dow has traded in a 103-point range and is up 4 points midday. The NASDAQ lost 11.3. The CBOE Volatility Index (.VIX) slipped .56 to 34.92. Options volume is running about typical levels, with 3.8 million calls and 3.6 million puts traded at 12:30 ET.

Bullish
The top trades so far today are in the S&P Depositary Receipts (SPY). Shares of the exchange-traded fund are up 24 cents to $107.06 and a strategist apparently bought the August 115 – June 110 call spread at $1.65, 42000X. That is, it appears they sold-to-close a position in 42,000 June 110 calls at $1.07 and bought-to-open a similar position in the August 115 calls at $1.72. They might be looking for shares to hold below $110 through the June expiration (11 days) and move beyond $115 through the August expiration.

Green Mountain Coffee Roasters (GMCR) lost 16 cents to $23.31 and options volume is 2.5X the average daily, with 17,000 calls and 5,475 puts traded so far. The heightened activity comes on no company specific news, but seems to be driven by speculative call buyers. June 26.67 (adjusted contract) and 25 calls are the most actives, with 6,426 and 5,547 traded and only about 37 percent traded on the bid. Meanwhile, the June 25 is the most active put contract, with 1692 traded and 76 percent hitting on the bid, suggesting premium sellers are driving the action on the put side of the options chain.

Bearish
Walmart Stores (WMT) is up 1.8 percent to $51.33 and the best gainer in the Dow Jones Industrial Average Monday morning. In options action, a noteworthy trade surfaced early when an investor sold 12,000 June 45 puts at 10 cents per contract and bought 6,000 July 50 puts at $1.18. This 2X1 diagonal spread might be on the view WMT will hold above $45 through the June expiration (11 days), but also fall below $50 through the July expiration. Separately, a block of 12,000 WMT June 55 calls was apparently sold at 4 cents per contract.

Evergreen Solar (ESLR) is down a nickel to 80 cents and falling to new 52-week lows Monday. Meanwhile, options volume is running 3X the average daily. July 1 puts traded 1255X and, with 87 percent trading at the asking price, it appears that put buyers are taking positions on concerns about additional losses in shares of the solar energy company. June 1 puts traded another 990X.

Unusual Volume Movers
Bristol Myers (BMY) options volume is running 4X the usual, with 68,000 contracts traded and call volume accounting for about 70 percent of the activity.

CVS options activity is running 3X the usual, with 50,000 contracts traded and call volume representing 66 percent of the volume.

Xilinx (XLNX) options volume is running 5X the usual, with 20,000 traded and call volume representing 97 percent of the activity.

Autodesk (ADSK), Walgreens (WAG), and Harley Davidson (HOG) also had unusual volume.

Implied Volatility Movers
TIVO implied volatility is moving higher, as takeover chatter made the rounds in the name Friday. It’s unsubstantiated, but the talk did trigger a reaction in the options market. Shares are up 15 cents to $8.50 and 15,000 calls traded, which is double normal levels and compares to just 1,280 puts. Meanwhile, implied volatility is up about 7.5 percent to 72.5.