Investment Sentiment Bolstered 01-26-2011

Cusick's Corner
optionsXpress was at the Nasdaq Market Site this morning to celebrate our 10th Anniversary. Several employees along with optionsXpress customers helped Ned Bennett, one of our original founders, ring the opening bell. After the opening ceremonies, we had a detailed website presentation for customers and right now we are having a little lunch break but we will have to start back up in a minute. It's always fun to meet our customers at these in person events. See you After Hours.

Stock market averages are sporting modest gains with help from economic data Wednesday. A report released Wednesday morning showed New Home Sales improving to an annual rate of 329,000 in December, which was up from 280,000 the month before and ahead of the 300,000 that economists had predicted. Investor sentiment was also bolstered by President Obama's State of the Union address Tuesday evening. The President vowed to close corporate tax loopholes and use revenues to lower corporate business tax rates for the first time in 25 years. However, the earnings news was mixed. Boeing (BA) is down 3.6 percent and the biggest loser in the Dow Jones Industrial Average after its earnings failed to live up to expectations. Yahoo (YHOO) is also trading lower, but Juniper Networks (JNPR) is seeing a post-earnings run higher. Now, the market seems to have slipped into wait-and-see mode ahead of the Federal Reserve meeting on interest rates. A post-meeting statement is due at 2:15pm ET. The Dow Jones Industrial Average is up 5 points and the tech-heavy NASDAQ has added 15 through midday. The CBOE Volatility Index (.VIX) is down .54 to 17.05. Trading in the options market remains active, with 4.2 million calls and 3.7 puts traded through 12:00pm ET.

Unusual Volume
Eastman Kodak (EK) options volume is running 6X the average daily, with 71,000 contracts traded and put volume accounting for 53 percent of the volume, according to data from WhatsTrading.com.

Halliburton (HAL) options volume is 2X the average daily, with 64,000 contracts traded and call volume representing for 68 percent of the activity.

Boeing (BA) options volume is running 2.5X the average daily, with 56,000 contracts traded and call volume accounting for 61 percent of the activity.

Increasing options activity is also being seen in Corning (GLW), Sara Lee (SLE), and Abbott Labs (ABT).

Bullish Flow
Corning (GLW) shares are up 66 cents to $21.87 and in the midst of three-day 13.1 percent run higher. Better-than-expected earnings helped fuel a rally in the glass-maker yesterday. Today, shares are adding to the gains and options action is brisk, with 34,000 calls and 14,000 puts traded in the name so far. February and March calls with strike prices ranging from 19 to 23 are busy, as some players are probably banking profits in the in-the-money calls and opening new ones in the out-of-the-money March calls. However, March 21 puts are the most actives after more than 5,000 traded. Some investors might be buying puts to lock in or protect recent gains in GLW shares.

KB Homes (KBH) is up 49 cents to $15.74 amid strength in the homebuilders after data released Wednesday morning showed New Home Sales up a better-than-expected 17.5 percent in December. KBH is trading higher on the news and options action includes 16,000 calls and 3,665 puts. The top trade of the day isn't bullish, however, as one investor sold a block of 9,850 March 16 calls at 92 cents each. A shareholder looking to generate income by selling calls against KBH stock might have initiated the trade as part of a covered call. Or, the premium sale might be a straight bet that shares will not trade above $16 through the March expiration.

Bearish Flow
Weyerhaeuser (WY), the Federal Way, WA forest and products company, is trading down 13 cents to $22.87 and options volume includes 21,000 puts and 1,065 call options. January 2012 puts at the 22.5 strike are the most actives after one investor bought a block of 17,000 contracts at $3.18 per contract. The massive premium purchase is possibly a hedge designed to protect recent gains. Weyerhaeuser shares have rallied 46 percent since late-October. Earnings are due early-Feb.

Interesting spreads in the S&P 500 Index (.SPX) Wednesday morning. The Index is trading up 5.06 to 1,296.24 and early trades were focused on the February 1,360 – 1,370 call spreads. 21,225 traded at 25 cents. More than 30,000 traded total and, according to a source on the exchange floor, the spread was being sold. If so, it's not really a bearish play, but rather a bet that the S&P will hold below 1,360 (4.9 percent above current levels) through the February expiration in 22 days.

Implied Volatility Movers
Eastman Kodak (EK) is getting slammed for a second day. Shares sank 13 percent yesterday after a judge ruled in favor of device-makers in a patent dispute. EK is down another 15.3 percent today after the company reported a loss for the most recent quarter. Analysts were expecting a profit of 12-cents per shares. Options action remains brisk, with 38,000 puts and 33,000 calls traded. Implied volatility is easing, however, now that the earnings event risk has passed. IV in Eastman Kodak options is down 22 percent to 61.