Waiting for Big Ben to Chime In 04-26-2011

Cusick's Corner
The market did grind into the close but could not hold the highs - the NAZ and the S&P are at levels that we haven't seen in years. While the earnings data was still strong, the market is waiting for the FOMC meeting tomorrow that will be followed by Bernanke's Q&A session. At this time the market is concerned with how long growth and rising inflation can continue to co-exist, plus which one will blow upside first. Traders and investors will be listening for any indication that the Fed is seeing inflation much sooner than estimated and that economic data is static at best -- this would be the Bull's nightmare and the Bear's dream. We will have to wait and see at Big Ben's Q&A tomorrow afternoon. See you Midday.

Stock market averages posted gains with help from upbeat earnings results and Consumer Confidence data Tuesday. 3M (MMM), Ford Motor (F) and Delta Airlines (DAL) were among the names seeing post-earnings strength. Meanwhile, the Conference Board reported this morning that its index of consumer confidence increased to 65.4 in April, from 63.8 in March and better than the 64.4 that economists had expected. Beyond that, it was a relatively slow news day and some investors are now in wait-and-see mode ahead of the next round of corporate earnings as well as the conclusion of the Federal Reserve's meeting on interest rates Wednesday afternoon. The Dow Jones Industrial Average added 115 points in Tuesday's session. The tech-heavy NASDAQ gained 21.7.

Bullish
Newell Rubbermaid (NWL) options were actively traded today. 11,000 calls and only 37 puts traded on the Atlanta, GA housewares and accessories company. Shares added 19 cents to $19.24 and the June 20 calls were the most actives. 9,085 traded, including a 3,420-contract block at 45 cents per contract on the International Securities Exchange [ISE], which was bought-to-open, according to data from the exchange. May 19, May 20, June 21 and September 21 calls saw interest as well. The bullish trading in Newell Rubbermaid might be an earnings play. The company is due to release results Friday morning. Tupperware (TUP), another name in the same space, releases its results tomorrow morning.

Bullish trading was also seen in Emulex (ELX), Applied Materials (AMAT), and Caterpillar (CAT).

Bearish
Clorox (CLX) shares added 2 cents to $68.56 and a bearish three-way spread trader was busy in the name Tuesday morning. In this trade, the investor was selling May 72.5 calls and buying the June 67.5 - 65 (1X2) put spread. For example, in morning trading, 250 May 72.5 calls traded on the 15-cent bid, 250 May 67.5 puts on the 70-cent ask, and 500 May 65 puts on the 20-cent bid. This three-way, which traded 1500X total, appears to be targeting $65 per share by the May expiration, or a decline of 5.2 percent over the next 24 days. There's additional risk to the downside because only half of the May 65 puts, which were sold, are covered by the May 67.5 puts. A shareholder might have initiated the spread ahead of earnings, due the morning of May 3.

Bearish flow also surfaced in Sara Lee (SLE), Longtop Financial (LFT), and Allied Nevada Gold (ANV).

Index Trading
Trading activity picked up in the index pits Tuesday, but overall volume remains light. 510,000 calls and 451,000 puts traded across the S&P 500 Index (.SPX), CBOE Volatility Index (.VIX) and other cash index products today, which is only about 95 percent the normal volume, according to Trade Alert data. The CBOE Volatility Index (.VIX) slipped .15.to 15.62. The three most actively traded index contracts were SPX options. The S&P 500 finished the day up 11.99 to 1,347.24 and the SPX June 1,340 puts traded 47,650 contracts. SPX June 1,330 and 1,400 calls were the most actives. Some investors are likely taking positions in SPX options in preparation for possible volatility tomorrow when the Federal Reserve concludes its meeting on monetary policy and issues a statement at 2:15pm ET. For the first time, Fed officials will also hold a post-meeting press conference.

ETF Action
iShares FTSE China Fund (FXI) added 14 cents to $46.01 and options volume included 56,000 puts and 15,000 calls on the fund. The top trade was a May 44 put - 48 call strangle, which traded at 60 cents, 5000X. It appears that the investor sold the strangle and is possibly betting that shares will hold between $44 and $48 through the May expiration, which is in 24 days. Meanwhile, January 2013 puts at the 22 line were the most actives. The contract, which is 52.2 percent out-of-the-money, traded 16,090 contracts. Some investors might be taking positions in these deep OTM puts on the view that volatility in China's equity markets will see a substantial increase in volatility through January 2013.