Four Sectors Worth Watching 06-28-2010

Cusick’s Corner
The market has been in a tight but whippy range going into the Midday. I am keeping an eye on four key sectors, Consumer Discretionary (XLY), Financials (XLF), Tech (XLK), and Industrials (XLI). If this market is going to see any potentially meaningful market shift to the upside, we will need three out of these four sectors to move in a positive direction. See you After Hours.

The major averages are holding modest gains on a relatively slow news Monday. Markets were higher across Europe prior to the start of trading in New York after the G-20 met over the weekend and pledged to reduce deficits and cut debt. Meanwhile in the US, the focus was on May Personal Incomes and Spending data. The report showed incomes up a less than expected .4 percent, but spending increasing by .2 percent. Economists were looking for a .5 percent gain in incomes and .1 percent increase in spending. With not much else to guide the morning action, the major averages slipped on the data, but then found modest strength mid-morning. The Dow Jones Industrial Average is now up 27 points. The CBOE Volatility Index (.VIX) added .34 to 28.87. Trading in the options market is on the light side, with about 2.8 million calls and 2.5 million puts traded at 12:30 ET.

Bullish
Home Depot (HD) shares are down 1.6 percent to $29.71 and one of 11 Dow stocks moving lower Monday morning. In the options market, one noteworthy trade in the home improvement retailer is an August 32 – 34 call spread that was apparently bought at 39 cents, 20000X. That is, looks like one player bought 20,000 August 32 calls at 55 cents each and sold 20,000 August 34 calls at 16 cents apiece. If this is an opening trade, it’s a bullish bet, as the spread offers a potential $1.61 pay-off (excluding commissions), if shares rallied to $34 or more by the August expiration.

Expedia (EXPE) shares are up 21 cents to $19.77 and options volume is 3X the average daily, driven by buyers of October 25 calls. 4,435 contracts have traded midday and nearly all have traded at the Ask price, which indicates buyers are initiating the trades. These options are cheap at only 40 cents per contract because they are more than $5 out of the money. Looks like speculative call activity in the online travel company.

Bearish
Starbuck’s (SBUX) shares are down 30 cents to $26.51 and some investors seem to see some trouble brewing for the coffee chain, as 13,000 puts and 1,600 calls have traded in the name so far. January puts at the 20 strike are the most actives. More than 11,100 contracts traded, including several large blocks at the 92-cent asking price. Implied volatility is up about 3 percent to 35.

Alkermes (ALKS), a Waltham, MA biotech, is down 17 cents to $12.92 and options action seems defensive, with 6,325 puts and 145 calls traded so far. The top trade is a block of 5,800 November 10 puts at the 95-cent asking price. Looks like a buyer taking a position and bracing for potential volatility in ALKS shares. The action comes on the heels of trial data for the company’s BYDUREON. Implied volatility is up 8 percent to about 53.

Unusual Volume Movers
EBAY options volume is running 4X the usual, with 64,000 contracts traded and put volume accounting for about 55 percent of the activity.

Yahoo (YHOO) options activity is running 2X the usual, with 43,000 contracts traded and call volume representing 83 percent of the volume.
Seagate Technology (STX) options volume is running 2X the usual, with 42,000 traded and call volume representing 86 percent of the activity.

Unusual volume is also being seen in MannKind (MNKD), Mosaic (MOS), and Adobe (ADBE)

Implied Volatility Movers
Altria (MO) implied volatility is easing after a Supreme Court ruled against the Department of Justice in its bid to seek damages from tobacco companies. MO is up 68 cents to $20.38 on the news and options volume is running 7X the average daily, with 126,000 puts and 33,000 calls traded. Some investors are likely closing hedges that were initiated prior to the ruling. Implied volatility is down about 30 percent to 21.