Not Stressed? 07-23-2010

Cusick’s Corner
The midday trade is tight and there is no directional bias at this stage of the trading day. The stress test results (for the most part) were a non-event and really did not give traders a better view that could potentially influence positioning. Tech looks potentially poised for a move to the upside into the After Hours and we continue to see Small Caps like IWM showing strength as well, which could be a positive for a potential rally mounting some strength in the general market. Patience and discipline is pinnacle at this stage of the market as the stress test data gets discussed. See you After Hours.

The major averages are little changed following a mixed round of earnings news. With no economic data to guide the morning action, most of the attention is on corporate earnings reports. Ford Motor (F) and Honeywell (HON) were among the names reporting strong results. Verizon (VZ) is up 4.2 percent and leading the Dow Jones Industrial Average higher after its earnings topped expectations. However, McDonald’s (MCD) is off 2.3 percent, and the biggest loser in the Dow, after its earnings fell short of estimates. Amazon.com (AMZN) is also seeing post-earnings weakness. Meanwhile, the major averages faced a bit of selling pressure Friday morning after some of the details about the European stress tests made the newswires. The decline was orderly and stocks are now trading mixed. The Dow Jones Industrial Average is up 20 points and the NASDAQ down 1.5. The CBOE Volatility Index (.VIX) is up .04 to 24.67. Trading remains active in the options market, with about 2 million calls and 1.9 million puts traded through 11:00 ET.

Bullish
Ford Motor (F) is rallying and call options are actively traded after the automaker reported quarterly earnings of 68 cents per share, which easily beat Street estimates of 40 cents. Shares are up 41 cents to $12.51 and 93,000 Ford calls already traded on the session, which is 3X typical volume and more than double the number of puts. August 12 and 13 calls are the most actives, with 31,900 and 21,160 traded, respectively. Weekly $12 calls, which expire after today, are also busy with 10,800 trading so far.

Quicksilver (KWK), a Fort Worth, TX independent oil and gas company, added 90 cents to $13.65 after the company announced a $1 billion sale of its interests in Quicksilver Gas Services. Shares rallied on the news and options volume is 2.5X the average daily, with 5,600 calls and 360 puts traded so far. Some players are buying August 15 calls and probably taking speculative positions on hopes for additional gains in the weeks ahead. August options come off the board four weeks from today.

Bearish
Kinross Gold (KGC), the Toronto-based gold miner, is up 18 cents after the company announced plans to sell its 19.9 percent equity stake in Harry Winston Diamond Corporation, or 15.2 million Harry Winston shares. The stock is up, but options order flow seems somewhat bearish. 6,020 August 17 puts traded in the name so far. Most of the action has been in smaller lots and looks driven by put buyers. The top trade is a lot of 446 at 95 cents on ISE and an opening customer buyer, according to ISEE sentiment data. Implied volatility is up about 2.5 percent to 38. Earnings expected mid-August.

Russell 2000 Small Cap Index (.RUT) August 710 and 720 calls are among the most actives, with more than 37,000 traded in each. Some players were selling the spread and collecting 30 cents to sell the 710s and buy the 720s, according to a source on the exchange floor. The spread is a low reward, high probability trade because the 710 calls are 12 percent out-of-the-money. The risk is high, however, because if the Russell rallies beyond 720, the max potential loss is $9.70 per spread. It’s not necessarily a bearish play, but a bet that the upside to the Russell is limited over the next four weeks, or through the August expiration.

Unusual Volume Movers
Amazon.com (AMZN) options volume is running 2.5X the usual, with 126,000 contracts traded and put volume accounting for about 54 percent of the activity.

Career Education (CECO) options activity is running 3.5X the usual, with 12,000 contracts traded and call volume representing 72 percent of the volume.
Arm Holdings (ARMH) options volume is running 4X the usual, with 9,900 traded and call volume representing 88 percent of the activity.

Unusual volume is also being seen in Pactiv (PTV), Titanium Metals (TIE), and Riverbend Tech (RVBD).

Implied Volatility Movers
Range Resources (RRC), another Fort Worth, TX independent oil and gas company, is down $1.24 to $39.14 and implied volatility is higher ahead of earnings next week. Options volume is 3X the average daily, with 9,090 puts and 2,275 calls traded in the name. Some players are buying August 37.5 and 39 puts ahead of the results. Consequently, implied volatility is up 10 percent to 44.5.