Quiet Action 12-09-2010

Cusick's Corner
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Stocks are trading mixed in quiet action Thursday. Weekly jobless claims numbers came into focus early after the Labor Department reported that filings for jobless benefits fell by 17,000 to 421,000 in the first week of December. Economists were looking for a decline of 9,000. Stock index futures ticked higher on the data and the move set the table for morning strength on Wall Street. Steady trading overseas equity markets and stability in Treasurys, which were pummeled in the previous two trading sessions, seemed to help set a positive tone for morning trading as well. A report on Wholesale Investors, released thirty minutes into trading, showed an increase of 1.9 percent in October, but did not have much market impact. The Dow Jones Industrial Average is off 30 points, but the NASDAQ has added 2.75 through midday. The CBOE Volatility Index (.VIX) hit a low of 17.29, but is flat at 17.75. Trading in the options market remains active, with about 4.5 million calls and 3 million puts traded through 12:00 ET.

Bullish
AIG is seeing brisk trading on news it will pay back its debt to the Federal Reserve and the Treasury Department. Shares notched a new 52-week high and are up $4 to $46.23 midday. Meanwhile, options volume includes about 64,000 calls and 26,000 puts. December 45 calls are the most actives. 12,415 have changed hands. December 44, 46 and 47 calls are seeing brisk trading as well. Short-term speculators are active in the name on hopes the stock can continue running higher through next week's expiration. Others are probably taking money off the table after the stock's big move.

The top options trade so far today is a massive block of calls on Citigroup (C). Shares are up 3 cents to $4.67 and one investor paid 60 cents per contract for 204,391 January 2012 calls at the 5 strike. This huge premium purchase, worth more than $12 million, was also tied to a block of 15.4 million shares at $4.69. It's possibly closing of a massive covered call. Existing open interest in the contract is more than 2 million contracts.

Bearish
Puts on US Steel (X) are busy today. Shares are up 87 cents to $52.91 and 30,000 contracts traded, which is 3X the expected at midday and also 3X the day's call volume. The top trade is a block of 8,530 December 50 puts when the market was 31 to 32 cents and is possibly a buyer. 21,660 now traded, compared to 3,132 of open interest. Another 3,372 December 52.5 puts also changed hands. There's no news on the steelmaker, but today's options activity seems to reflect anxiety about the short-term outlook for the shares. December options expire at the end of next week.

Technology Select Sector Fund (XLK) puts are busy for a second day. Like yesterday, most of the action is in the January 22 – 23 – 24 put butterfly spread. In this spread, the strategist paid a net debit of 9 cents (per spread) to sell 20,000 January 23 puts and buy 10,000 January 22 puts and 10,000 January 24 puts. This fly is a cheap play because (excluding commissions) the breakeven is at $23.91 at expiration, or 4.4 percent below current levels of $25 per share. The same spread traded 20,000X at 10 cents yesterday.

Unusual Volume Movers
Teva Pharmaceuticals (TEVA) options volume is running 4X the usual, with 42,000 contracts traded and call volume accounting for 70 percent of the activity, according to data from website WhatsTrading.com.

Luluman Athletica (LULU) options activity is running 7X the usual, with 41,000 contracts traded and call volume representing 71 percent of the volume.

Ciena (CIEN) options volume is 4X the typical levels, with 39,000 contracts traded and put volume accounting for 59 percent of the activity.

Increasing volume is also being seen in Eastman Kodak (EK), BB&T (BBT), and United Continental (UAL).

Implied Volatility Movers
Teva Pharmaceuticals (TEVA) is rallying and implied volatility is easing after the company said it expects its Multiple Sclerosis treatment to be approved within two years. Shares are up $3.05 to $52.32 on the news and options volume is 5X the recent average daily. 34,000 calls and 16,000 puts traded. Meanwhile, implied volatility is down about 4.5 percent to 21.5.