Mixed Economic News 06-25-2010

Cusick's Corner
It’s been a choppy session but major markets are a bit higher now amid the news that a financial reform deal was made overnight. Overall economic fears are still weighing on the market. In the morning, GDP came in worse than expected, which was later counter balanced by Consumer Sentiment that was better than expected, creating a choppy session. VIX is down now – down about 5% midday. See you After Hours.

The major averages are flat following a round of mixed economic news Friday. Stock index futures fell before the start of trading in New York after the latest GDP report showed the economy growing at a 2.7 percent annual rate in the first quarter, which was less than the 3 percent that economists had expected. The Dow Jones Industrial Average slipped in morning trading, but then found some support from the latest University of Michigan Consumer Sentiment Index, which rose to two year highs of 76 in late June and better than the 75.5 that economists had expected. From there, trading has been choppy and the Dow is down 25 points. The NASDAQ is flat. Trading in the options market is active, with about 2.9 million calls and 2.7 million puts traded at 12:00 ET.

Bullish
BP shares are down $1.38 to $27.36 and falling to 14-year lows amid ongoing worries about the political and financial ramifications of the Gulf spill. In the options market, one noteworthy spread trade was in the August contracts after an investor sold 5000 August 20 puts to buy 5000 August 30 – 35 call spreads. They paid a 17-cent net debit for this three-way trade and seem to be looking for a rebound in BP shares before the August expiration. By selling the puts, they are also making the statement that they are willing buyers of shares at $20.

Options action is picking up in Saks (SKS). Shares are up 20 cents to $8.21 after takeover chatter surrounded the retailer Friday morning. It’s unsubstantiated, but did send call options volume to 6X normal. 2,340 traded through midday, compared to just 20 puts. Players were focused on the August and July 10 calls, with 1920 and 290 contracts traded respectively.

Bearish
S&P Depositary Receipts (SPY), the exchange-traded fund that holds the S&P 500, is flat at $107.42 and SPY August 104 and 94 puts are among the day’s most active options. The action includes some spread trading, where one or more investors were buying the 104s and selling the 94s. For example, the spread traded at $1.93, 5000X on the ISE. This is likely a portfolio manager looking for a hedge. The potential pay-off (excluding commissions) is $8.10 if SPY falls to $94 or less by August expiration, which equals a 12.6 percent drop for the stock market through August.

Tyson Foods (TSN) shares are down 40 cents to $17.47 and options volume is running 3X the recent average daily. One player paid 65 cents for October 15 puts, 3500X. A total of 4,000 contracts now traded. Implied volatility is up 3 percent to 36.5 and these put buyers might be looking for a way to hedge TSN shares or to speculate on a drop in the share price through the October expiration.

Unusual Volume Movers
Research In Motion (RIMM) options volume is running 2.5X the usual, with 169,000 contracts traded and call volume accounting for about 51 percent of the activity.

Avis Budget (CAR) options activity is running 8.5X the usual, with 19,000 contracts traded and call volume representing 99 percent of the volume.
Accenture (ACN) options volume is running 11X the usual, with 17,000 traded and put volume representing 55 percent of the activity.

Unusual volume is also being seen in Quest Diagnostics (DGX), Quicksilver (KWK), and Proshares Ultra Short Russell 2000 (TWM).

Implied Volatility Movers
Noble Corp (NE), an offshore oil and gas driller, hit a high of $29.72 and was recently up 66 cents to $29.l2. Options volume surged, with 32,000 calls and 2,600 puts traded so far. A lot of the action is in the July 30 calls, which traded 24,000X through midday. Meanwhile, implied volatility jumped about 8.5 percent to 50.