Dollar Weak, Market Pops 05-31-2011

Cusick's Corner
If you are trading headlines then this is your market. If you are trading data, well this is a frustrating time. The market has rallied with the weakness in the buck which has been attributed to the rhetoric that the Germans potentially might soften the Greek austerity plan. While it looks like the EU is taking a printing page out of the Fed's playbook, we will have to watch if this printing results in the potential assault on the buck. The other plus for the bulls is that sentiment shifted weeks ago in retail, so there are some who are not participating in this leg which could put more short-term buying pressure for fear of missing the next leg up. Skeptics will be talking into this rally but I will not advocate at this stage much resistance, especially with the upward trendline firm in support -- June S&P futures above 1333. See you After Hours.

Stock market averages are holding gains, but are well off session highs midday. The table was set for early gains on Wall Street after talk of a bailout of Greece sent the euro rallying against the buck. However, as the euro gave back some of the early advance; the day's domestic news seemed to weigh on investor sentiment as well. The Chicago Purchasing Manager's Index, a gauge of regional manufacturing activity, fell to 56.6 in May, from 67.6 the month before. Economists were looking for the PMI to dip to 62.5. Separately, the Commerce Department reported that its index of Consumer Confidence fell to 60.8 in May. Economists were looking for an increase to 66.3 from 66.0 the month before. Meanwhile, action in the commodities market is mixed. While Crude gained $1.41 to $102 per barrel, gold has given up early gains and is down $2.7 to $1,533.60 an ounce. The Dow Jones Industrial Average is now up 50 points, but 82 points from session highs. The tech-heavy NASDAQ has added 14.2. The CBOE Volatility Index (.VIX) gained. 36 to 16.34. Overall options volume is light today, with 4.1 million calls and 3.3 million puts traded through 12:45pm ET.

Bullish Flow
Optimir Pharmaceuticals (OPTR) shares are up and calls are active after the FDA approved the company's treatment for hospital infections. Shares saw a spike to $14.70 when the news hit the wires Friday afternoon. Shares are up $1.05 to $14.03 today and options volume includes 14,000 calls and 3,675 puts. June 15 call options are now 6.9 percent out-of-the-money and are the most active OPTR options contract. 8,680 contracts traded and some investors might be taking positions on hopes the rally in shares can continue through the June expiration, which is in 17 days. June 12.5 calls and 12.5 puts are the next most actives in Optimir.

Coca Cola (KO) sees noteworthy spread trading Tuesday morning. Coke shares are up 34 cents to $66.85 and one investor sold the January 65 - 70 call spread at $2.36, 10000X. That is, they sold 10,000 January 65 calls at $3.95 and bought 10,000 January 70 calls at $1.59. The same spread traded 10000X Friday and today's open interest data indicate a roll of a position up in strikes. Today's spread is probably rolling activity as well. The investor is closing out a position in the in-the-money January 65 calls and taking a new bullish position in the out-of-the-money January 70 call options.

Bearish Flow
Nokia is down and options volume is up after the company lowered its second quarter and full year outlook for its core business. Shares are down 14 percent to $7.06. Options volume is 47,000 calls and 45,000 puts. July 8 puts, which are now 94 cents in-the-money, are the most actives. 10,640 traded and, with 92 percent trading on the bid, some investors might be closing out positions and banking profits on those puts as Nokia shares sink Tuesday. Nokia's October 7 puts, July 7 calls and June 7 calls are seeing brisk trading as well. At the same time, implied volatility in NOK options jumped to 34.5.

The Russell 2000 Small Cap Index (.RUT) has added 6.74 points to 843.00 and the June 895 - 905 call spread on the index saw noteworthy volume early Tuesday. One investor apparently sold the spread at 30 cents, 9000X - collecting 70 cents on the 895s and paying 40 cents on the 905s. The spread has traded more than 20000X and appears to be new positioning. It's not necessarily a bearish play, but a bet that the small cap index will hold below 895 through the June expiration, which would represent a rally of almost 7 percent in the next 16 days. Substantial losses are possible, up to $9.70 per spread plus commissions, if the Russell rallies to 905 or more before the contracts expire.

Unusual Volume
Nokia (NOK) options volume is running 5X the (22-day) average, with 90,000 contracts traded and call volume accounting for about 51 percent of trades.

Level 3 (LVLT) options volume is 3X the average daily, with 23,000 contracts traded and call volume representing for 77 percent of the activity.

Viacom (VIA/B) options volume is running 18X the average daily, with 20,000 contracts traded and call volume accounting for 50 percent of the activity.

Increasing options activity is also being seen in Apollo (APOL), Pulte Group (PHM) and RF Micro Devices (RFMD).

Implied Volatility Mover
CBOE Volatility Index (.VIX) is edging higher despite a gain for the S&P 500 Index (.SPX) today. VIX, which tracks the expected volatility priced into SPX options, often falls when the S&P 500 performs well. Today, however, the S&P has added 5.65 points to 1,336.75 and VIX edged up .30 to 16.28. The volatility index is coming off low levels seen last week and ahead of key economic data due out in the days ahead. Monthly jobs data, due Friday morning, probably have the most market moving potential. Meanwhile, it looks like some investors in the options market are bracing for a potential uptick in market volatility as well. 259,000 calls and 80,000 puts have traded in the VIX options trading pit so far today.