Running Late 03-04-2011

Cusick Corner
Running late today, I apologize. This is the consolidation that I had been discussing since last week, the market looks content at this stage to stay in a range, S&P 1300-1340. While this is frustrating, it is important for traders and investors to keep an eye on both volatility (VIX relatively low at 18) and market sentiment (Put/Call Ratio on OEX at 1 neutral) to help gauge sentiment and fear or lack thereof. If you have been spreading off your trading convictions then you are most likely happy, otherwise you have been trading like crazy. Watch the close for clues of strength. See you After Hours.

Stocks are broadly lower, as rallying crude oil prices overshadowed an upbeat jobs report. The economy was in focus early Friday after the Labor Department reported that 192,000 new jobs were created and the unemployment fell to 8.9 percent from 9 percent last month. Economists were looking for an 185,000 increase in payrolls and an unemployment rate of 9.1 percent. The Dow Jones Industrial Average opened steady on the data, but then came under fire within 30 minutes of the opening bell after crude oil prices rallied to their best levels since September 2008. Crude is now up $2.21 to $104.12 a barrel amid escalating conflict in parts of North Africa and the Middle East. The Dow Jones Industrial Average has been trading steadily lower since mid-morning and is off 161 points at midday. The NASDAQ has given up 26 points. The CBOE Volatility Index (.VIX) is up 1.65 to 20.25. Overall options volume is picking up, with 4.9 million calls and 4.1 million puts traded through 12:30pm ET.

Bullish Flow
There's noteworthy options action in Petrobras (PBR) today, which is seeing relative strength with help from rallying crude oil prices. Shares of the Brazilian energy giant are trading up 26 cents to $41.20 and a total of 55,000 call options have traded in PBR so far. The top trades are part of a spread. In this trade, the strategist apparently bought 12,500 July 43 calls at $2.17 and sold 12,500 July 50 calls at 52 cents. The spread, for a net debit of $1.65, looks like a bullish play. It makes its best profits if PBR rallies to $50 or beyond by the July expiration.
Southwest Airlines (LUV) is trading down 21 cents to $11.57 and has lost almost 10 percent over the past two weeks on concerns about the impact of rising oil on jet fuel costs and air travel. Order flow is interesting, as 9,530 calls and 1,425 puts have traded in the airliner. March 12 calls are the most actives. 8,500 traded and, with percent trading at the ask, it looks like short-term speculative call buying in Southwest. March options expire in two weeks.

Bearish Flow
The top trade of the day today is a block of calls on JP Morgan (JPM). Shares are down 2 percent to $45.16 and one of thirty Dow stocks trading lower today. None of the Dow components are above water through midday. Meanwhile, the big options trade of the day is a block of 31,000 March 47 calls sold at 23 cents. The same investor bought 7,000 April 47 calls, according to a source on the options exchange floor, and is probably throwing in the towel on hopes for a rally in JPM above $47 through the March expiration. However, they are also taking a new smaller position in April 47 calls.

Central European Distribution (CEDC), which is an importer/exporter of alcoholic beverages mainly to Europe, is trading down $1.48 to $12.46 and probing new 52-week lows after Credit Suisse lowered their rating on the stock to Underperform. Options volume is running 14X the average daily. 23,000 puts and 2,200 calls traded in the name. September 10 puts, which are almost 20 percent out-of-the-money, are the most actives.

Unusual Volume
Target (TGT) options volume is running 5X the (22-day) average, with 115,000 contracts traded and call volume accounting for 61 percent of the volume.

TIVO options volume is 2X the average daily, with 43,000 contracts traded and call volume representing for 83 percent of the activity.

YRC Worldwide (YRCW) options volume is running 2.5X the average daily, with 36,000 contracts traded and put volume accounting for 90 percent of the activity.

Increasing options activity is also being seen in Vivus (VVUS), Gilead Sciences (GILD), and Kinross Gold (KGC).

Implied Volatility Mover
Vivus Pharmaceuticals (VVUS) is trading down 66 cents to $6.39 after the FDA issued a notice of risk of birth defects for topiramate, which is one of two elements used to make Vivus' Qnexa weight loss drug. Shares were sent reeling on the news. Meanwhile, options volume includes 20,000 puts and 4,745 calls, or 7X the average daily. Implied jumped 21 percent to 74.5.