Market Flirt 01-11-2011

Cusick's Corner
The market continues to flirt with levels that we have not seen in almost 3 years, 1278 on the SPX. It's worth noting that near the SPY's highs of 127.72, a large seller came in quickly on no news. The market has held its gains in spite of the pullback and the market action still looks healthy. This is the type of selling that I want to monitor to see if any headlines start to cross. Bond auctions are also going on, the initial reaction is falling yields -- keep an eye on this as well. See you After Hours.

Stocks opened steady on positive earnings news and gains across Euro-zone equity markets Tuesday. Stock market averages moved broadly higher across Europe after Japan indicated it might buy debt of some troubled nations, which might help lower interest rates and ease credit strains across the Euro-zone. France's CAC 40 Index helped pace the advance with a 1.6 percent rally. Meanwhile, earnings are in focus after Dow component Alcoa (AA) reported earnings that topped Street estimates. The only economic stat of the day showed November wholesale inventories down .2 percent. Economists were looking for an increase of .1percent. The market showed little reaction to the data. Instead, the focus seems to be on positive development overseas and corporate earnings. The Dow Jones Industrial Average is up 54 points midday and the tech-heavy NASDAQ has added 11.6. The CBOE Volatility Index (.VIX) lost .72 to 16.82. Trading in the options market is active, with 4.4 million calls and 3.2 puts traded through 12:15pm ET.

Bullish Flow
HSBC (HBC), the British bank, is rallying after Citigroup analysts upgraded the stock to Buy from Hold. Shares added $1.25 to $53.71. Meanwhile, options volume is 2X the average daily. 10,000 calls and 2,540 puts traded in the name so far. The top trade is a block of 3,500 June 57.5 calls at the $1.62 asking price. Open interest in the June 57.5 call is 1,133 and 6,000 contracts now traded. So, it looks like some investors are buying-to-open new positions and possibly looking for HSBC shares to move beyond $57.5 through the June options expiration.

Sears Holdings (SHLD) is up $4.78 to $75.38 after the retailer reported earnings that topped Wall Street expectations. Shares jumped and options volume is now 5X the recent average daily, with 20,000 calls and 8,100 puts traded on the retailer through midday. The top trades look like a part of a spread in which the investor sold 2,500 January 85 calls at 28 cents and bought 2,300 February 85 calls at $1.21. This probably rolls a bullish position out an additional month, as the January 85 calls are almost $10 out-of-the-money and expire at the end of next week.

Bearish Flow
Supervalu (SVU) shares are reeling after the grocery chain reported results that missed Street estimates. SVU is off 91 cents to $7.68 and has now suffered a 20.2 percent loss so far in 2011. Options action remains brisk as well, with 26,000 calls and 17,000 puts traded in the name through midday. Some investors might be taking advantage of the weakness to enter bullish trades. 7,100 April 8 calls have traded and, with 73 percent trading at the ask, it looks like call buyers are dominating the action. Jan2012 $10 calls and Jan 7.5 puts are seeing brisk trading as well.

Collective Brands (PSS) is seeing relative weakness and increasing put activity. Shares are down 55 cents to $20.30. Meanwhile, options volume is 6.5X the average daily, being led by a block of 4,000 January 2012 puts at the $15 strike. It traded at $1.40 when the bid-ask spread was $1.20 to $1.45. This looks like a put buyer, possibly looking to hedge or protect recent gains in PSS shares throughout 2011. Shares are up 15.4 percent since earnings were last reported on 12/1.

Unusual Volume Movers
Verizon (VZ) options volume is running 2.5X the average daily, with 129,000 contracts traded and call volume accounting for 56 percent of the volume, according to data from WhatsTrading.com.

SuperValu (SVU) options volume is 4X the average daily, with 41,000 contracts traded and call volume representing for 56 percent of the activity.

NVidia (NVDA) options volume is running 2X the average daily, with 115,000 contracts traded and call volume accounting for 67 percent of the activity.

Increasing options activity is also being seen in Sirius Satellite (SIRI), MBIA (MBI), and AMD.

Implied volatility Mover
AMD shares are down and implied volatility is up after CEO Dirk Meyer announced his resignation. Shares lost 73 cents to $8.46 and options volume is 4X the average daily, with 39,000 calls and 17,000 puts traded on the chipmaker so far. Meanwhile, implied volatility has risen about 6.5 percent to 53.