Equities Starting to Cool 12-17-2010

Cusick's Corner
The market has been full of headlines but nothing that hasn't already been priced into the market. The market is in a tight consolidation and there are fewer jumping into this market at this stage. While this is more of a short-term neutral sentiment, it highlights that equities are starting to cool, not making new highs as frequently as they have been over the past sessions. Markets to monitor into the weekend -- the Dollar, UUP, is holding support and potentially bouncing; Gold, GLD, has been under pressure as of late and at critical levels, signaling some potential currency volatility or a potential upside set up. Make sure that you have managed your expiring options. See you After Hours.

Stocks are trading mixed on a relatively quiet Quadruple Witch December options expiration Friday. The economic calendar is light and included the List of Leading Economic Indicators, which rose to 1.1 percent in November and slightly less than the 1.2 percent that economists had expected. The market showed little reaction to the news. Meanwhile, some eyes remain on Washington where the House passed an $850 billion tax package late Thursday. It was expected, however, and the Dow Jones Industrial Average isn't seeing much movement through midday. The Dow has traded in 52-point range and is down 25 points. The NASDAQ is up 8.5 points with help from better-than-expected Oracle (ORCL) earnings (see Bullish Flow). The CBOE Volatility Index (.VIX) is off 1.05 to 16.35, as this week's event risk has passed and players look ahead to next week's abbreviated four-day trading week. Options trading is active due to the expiration, with 3.7 million calls and 3.1 million puts traded through 11:30 ET.

Bullish
Oracle (ORCL) is up and calls are heavily traded after the company reported results that beat Street estimates. The software-maker reported a quarterly profit of 51 cents, which was 5 cents better than analysts had expected. ORCL notched its best levels in almost a decade and added $1.68 to $31.95 through midday. Meanwhile, options volume is 2.5X the average daily. 85,000 calls and 29,000 puts traded on Oracle. A lot of the action appears to be short-term speculating and liquidating trades ahead of the expiration, as December 30, 31 and 32 call options, which expire after today, are the most actives.

Intermune (ITMN) is seeing impressive strength today. Shares are up $18.70 to $32.97 after European regulators voted favorably regarding the company's lung drug. Shares surged on the news and options volume is running 19X the average daily. 44,000 calls and 34,000 puts traded on the biotech through midday. Some players appear to be looking for additional upside in the January 35 calls, which have traded 14,595X and are the day's most actives. Jan 2011 options expire in five weeks.

Bearish
EBAY puts are seeing heavy trading. Shares are down 47 cents to $30.06 and one of the worst performers in the NASDAQ 100. Meanwhile, 46,000 puts and 11,000 calls traded on EBAY through midday. Most of the put volume is focused on the January 30 and 29 puts. It included a morning buyer of the 30s at $1.07 per contract. 11,735 now traded. January 29 puts are the most actives. 25,270 changed hands. No news on the stock, but the relative weakness in the stock and increasing put volume seems to reflect concern about the short-term outlook for shares of the online auctioneer.

JC Penney (JCP) options are actively traded. 5,900 calls and 6,890 puts traded through midday, which is about 3X typical volume for the retailer. Shares are up 60 cents to $33.45 and the top trades of the day are a January 34 – 30 (1X2) put ratio spread, in which the investor bought 1,380 Jan 34 puts for $1.90 and sold 2,760 Jan 30 puts at 43 cents. This spread, at a $1.04 net debit, is a bearish play. It makes its best profits if shares fall to $30. Assignment on the puts will be a factor as well. If shares fall below $30, those puts are in-the-money and the investor might have the stock “put” or sold to them at that price.

Unusual Volume Movers
Visa (V) options volume is running 3.5X the usual, with 132,000 contracts traded and put volume accounting for 52 percent of the activity, according to data from website WhatsTrading.com.

VALE options activity is running 2.5X the usual, with 88,000 contracts traded and call volume representing 88 percent of the volume.

Intermune (ITMN) options volume is 19X the typical levels, with 79,000 contracts traded and call volume accounting for 57 percent of the activity.

Increasing volume is also being seen in MasterCard (MA), American Express (AXP), and Fifth Third (FITB).

Implied Volatility Movers
St. Joe (JOE) implied volatility is moving higher along with the share price. Shares are up $1.63 to $21.80 on news Fairholme Capital Management President Bruce Berkowitz has been added to the company's Board. Shares are now up nearly 20 percent since Tuesday and options are busy today as well. 7,280 calls and 5,045 puts changed hands on the real estate company. Meanwhile, implied volatility is 12 percent to 53, from about 37 before the rally started Tuesday.