Expiration Unwind 05-18-2011

Cusick's Corner
The market has held into this expiration week. We are at critical levels and the bulls need to break 1333 on the S&P June futures. It's Wednesday, a critical point in the week because there are institutions that are starting to unwind monthly trades which often creates volume in the markets that is unusual. This is because large traders reverse out of positions, i.e. cover short stock/sell call covering stock b/c trying to take advantage of interest rates moving higher -- so keep an eye on that kind of move in volume starting in the After Hours.

The Dow Jones Industrial Average is holding a modest gain through midday with help from its energy-related components. Chevron Texaco (CVX) gained 2.5 percent and Exxon Mobile (XOM) added 1.7 percent after crude oil rebounded from recent losses. Crude is currently up $3.56 to $100.47 on bullish weekly inventory data. Beyond that, the economic news is light today. The Federal Reserve comes into focus this afternoon when minutes from the May FOMC policy meeting are released at 2:00pm ET. The Dow Jones Industrial Average is holding a 32-point gain ahead of the news. The tech-heavy NASDAQ is up 18.4. CBOE Volatility Index (.VIX) slipped .90 to 16.65. Options volume is much slower than Tuesday, with 4.3 million calls and 3.8 million puts traded through 12:30pm ET.

Bullish Flow
Dell Computer (DELL) shares are up 5.3 percent to $16.74 after the computer maker posted earnings that beat Street estimates. Dell also reaffirmed its guidance for the fiscal year. Shares moved to new 52-week highs and options volume is brisk, with 65,000 calls and 41,000 puts traded in the computer maker so far. May 17 calls are the most actives. 14,630 traded and might be seeing some closing trades, as the contract is 26 cents OTM despite the rally and expires at the end of the week. June 17 and January 20 calls are seeing brisk trading, as some investors might now be taking bullish positions in longer-dated options on heels of the positive earnings news.

Officemax (OMX) is down today. Shares touched a new 52-week low today after peer Staples (SPLS) posted disappointing quarterly earnings numbers and also lowered guidance for the full year. SPLS sank 15.2 percent. Officemax shares gave up 6.5 percent to $8.35 and have now tumbled 33.1 percent since the office supplies retailer reported results on April 28. Meanwhile, a noteworthy options trade in OMX today is a buyer of 5,500 August 10 calls at 40 cents per contract. This looks like an opening purchase. Volume in the contract, which is almost 20 percent out-of-the-money, is more than 6,500. Some investors might be bottom fishing with Aug $10 call options and looking for OMX to rebound between now and mid-August.

Bearish Flow
Eagle Bulk Shipping (EGLE) touched a new 52-week low today and is down 7 cents to $2.85. Options volume is running 11.5X the average daily. 8,760 puts and 100 calls have traded in the dry bulk shipper. The top trade is a 4,500-contract block of June 3 puts at 20 cents when the market was 15 to 20 cents. 5,365 now traded. Open interest in the contract, which is 15 cents in-the-money, is 2,240 contacts. So, this appears to be opening put buying. March 3.5 and September 2.5 puts are seeing interest as well. EGLE has been under fire since early November when the stock hit a new 52-week high of $5.25. Today's players in the options market seem to be bracing for additional losses in EGLE shares.

Industrials Select Sector ETF (XLI) is trading up 39 cents to $37.42. In options action, 166,000 puts and 32,000 calls traded on the fund. The top trade of the day is a spread, in which the investor sold 48,000 June 36 puts at 45 cents and bought 48,000 September 36 puts for $1.45. They paid $1 for the spread and probably rolled a bearish position to September from June. June 36 puts traded more than 50,000 contracts on March 22 when an investor initiated a substantial June 36 - 32 put spread. It appears that the June 36s are being closed and the June 32s left open. A new position is being opened in the September 36 puts. The net result is June 32 - Sep 36 put diagonal spread.

Unusual Volume
Eastman Kodak (EK) options volume is running 11X the (22-day) average, with 221,000 contracts traded and put volume accounting for about 69 percent of trades.

Dell Computer (DELL) options volume is 2X the average daily, with 108,000 contracts traded and call volume representing for 61 percent of the activity.

Hewlett Packard (HPQ) options volume is running 2X the average daily, with 46,000 contracts traded and put volume accounting for 61 percent of the activity.

Increasing options activity is also being seen in Deere (DE), Expedia (EXPE), and Symantec (SYMC).

Implied Volatility Mover
Eastman Kodak (EK) shares are rallying, options are very heavily traded, and implied volatility is easing on news the company's CEO and Senior Vice President bought 36,532 shares. EK is up 13.8 percent to $3.55 per share. 70,000 calls and 152,000 puts traded in the name. October 4 puts are the most actives after 21,000 traded. Some investors appear to be selling, as 61 percent traded on the bid and implied volatility in EK options is down 19 percent to 71.