Today's Shorts Snapshot 06-06-2011

Cusick's Corner
The market has broken down and while we are at potential congestion levels/support levels, the shorts are not covering at this stage. Right now the market is seeing volatility start to move and this is a point where you could see stocks get into a range, especially now that we are in the low end of the range. Now how you can strategize for stocks that have increased volatility and look to be range-bound? Potential candidates may be credit strategies that have defined risk - like Condors. Now if you do have some more upside then you could spread up as far as doing the Call credit further out. (You can do this as one ticket and at a price of your choosing on the new All-In-One order ticket.) The great part of this strategy is that it allows you to sell options but you have defined risk between the strikes (the range) of the Wings that you bought versus what you sold. See you Midday.

Stock market averages extended the June losing streak. The Dow Jones Industrial Average is down in all four trading sessions so far this month and has given up 480 points during that time. The industrial average opened Monday's session modestly lower and trading remained sluggish through midday. There was no economic data or earnings of importance to guide the action. Some of the energy-related names were notably weak after crude oil slipped $1.43 to $98.79 per barrel ahead of Wednesday's OPEC meeting. The AMEX Airline Index (.XAL) gave up 2.5 percent after an industry trade group warned that high fuel costs and recent events overseas could hurt profits in the sector. Meanwhile, BofA (BAC) gave up 4 percent and was the Dow's biggest loser today. BofA has been under pressure in recent days after Moody's warned that it might cut the credit rating of the bank, as well as Wells Fargo and Citigrup. At the end of the day, BAC was one of 23 Dow stocks to finish lower. Seven moved higher and the industrial average lost 61 points. The tech-heavy NASDAQ lost 30.2 points.

Bullish
Ivanhoe Mines (IVN) shares gave up 52 cents to $22.96, even as gold and silver prices moved higher Monday. Gold gained $3.4 to $1,545.80 and silver added 59 cents to $36.78. Meanwhile, as shares of the Vancouver-based miner slid, options volume jumped to 9X the average daily. 29,000 calls and 1,560 puts traded in Ivanhoe today. The biggest trade was a buyer of 19,000 June 24 calls at 35 cents each. The trade appears to be a new position and seems to be a bold move because the contact is 4.6 percent out-of-the-money, consists only of time value, and expires in 11 days. 20,450 contracts traded on the session. July 24, September 25 and January 25 calls were busy as well. There's been no recent news in the gold miner, but today's upside call buyers seem to be anticipating some sort of catalyst to lift IVN shares in the near future.

Bullish trading was also seen in MGM, Office Depot (ODP), and Fuel Cell (FCEL).

Bearish
Focus Media (FMCN) shares fell and puts were actively traded today. Shares of the Hong Kong-based ad agency lost $1.85 to $28.64 and have now tumbled 23.8 percent from the 52-week highs seen on May 2. The one-month slide in shares seems to have stirred up some bearish sentiment in the options market. 20,000 puts and 4,140 calls traded in Focus Media Monday. July 25 calls, which are 12.7 percent out-of-the-money and expire in 39 days, were the most actives. 8,830 traded. June 28, June 31, and October 28 puts saw brisk trading as well. There's been no recent news in FMCN to explain the stock's weakness or the bearish options action, but today's investors in the options market seem to be bracing for additional losses in FMCN in the weeks ahead.

Bearish flow also surfaced in Gen-Probe (GPRO), Lorillard (LO), and Armstrong World Industries (AWI).

Index Trading
Trading was relatively busy in the S&P 500 Index (.SPX) options pits at the CBOE today. The index lost 13.99 to 1,286.17 and closed below the 1,300 level for the first time since mid-March. SPX is down 4.4 percent month-to-date and the four-day slide has stirred up portfolio hedging in the index market. 487,000 puts and 334,000 calls traded in the S&P today. June 1,250 puts, which are now 36 points or 2.8 percent out-of-the-money and expire in 10 days, were the most actives. 42,650 traded. July 1,290 and 1,300 puts were heavily traded as well. Increased buying interest in SPX puts sent the CBOE Volatility Index (.VIX) up .54 points to 18.49. VIX, which tracks the implied volatility priced into S&P 500 options, finished the day up 4.5 percent from session lows and is now up nearly 20 percent so far in June.

ETF Action
Puts were active in the SPDR 500 Trust (SPY). While SPX is a cash-settled index of shares of five hundred leading US companies, the SPY is an exchange-traded fund that is designed to track the S&P 500. The key difference is that investors can buy and sell SPY shares throughout the day. SPX is a cash index and cannot be bought or sold. SPY shares finished the day down $1.38 to $129.04 (notice this is about 1/10th of the SPX) and options volume in the ETF included 1.44 million puts and 716,000 call options. June 130 puts are now .7 percent in-the-money and were the most actives. 115,000 traded on the day. June 125, 128, 129 and 131 puts saw active trading as well. Since SPY June options expire in 11 days, the increased activity in these puts seems to reflect some concern about the short-term outlook for the S&P.