1280 New Support 06-14-2011

Cusick's Corner
The market has bounced with some conviction on news that Japan is printing money, there were better than expected Retail Sales & PPI dropped. Copper, JJC, was a real winner on the Japan news, and equities squeezed the shorts on the news that Commodity pricing is pulling back, plus that the Consumer is still in the market. While I take this as just a bounce, this is expiration week, triple witching. We are seeing benchmarks get through some notable resistance levels, S&P through 1280, which could squeeze some of the Johnny-come-lately shorts out into the end of the week. I am not chasing this rally and the shorts are not blanketing this rise either. Prudence will prevail, so watch the close, see if bulk of the rally can hold, 1280 is new support level. From a strategic perspective, out-of-the-money debit calendar spreads might be a strategy worth reviewing, taking advantage of decay in both time and volatility short-term. See you After Hours.

Stock market averages are holding gains with help from better-than-expected retail sales data. According to numbers released early Tuesday, total sales fell .2 percent in May. While it marked the first decline in sales in 11 months, the headline number was better than the .7 percent decline that was expected. Separate data showed the Producer Price Index [PPI], a gauge of inflation at the wholesale level, up .2 percent in May, which was twice as much as expected. A third piece of data released later was Business Inventories at +.8 percent in April and .2 percent less than expected. However, the better-than-expected retail sales report, along with a post-earnings rally in Best Buy (BBY), seemed to ease some of the recent concern about the slowing domestic economy. Crude oil is also rebounding, up $1.71 to $99.01 a barrel. Gold gained $4.4 to $1,520 an ounce. The Dow Jones Industrial Average is up 138 points and near session highs. The tech-heavy NASDAQ gained 40.5. The CBOE Volatility Index (.VIX) is coming off two month closing highs and down 1.60 to 18.01. Bearish sentiment seems to be easing a bit in the options market, with 4.1 million calls and 3.7 million puts traded through 12:35pm ET.

Bullish Flow
Cisco Systems (CSCO) touched a new 52-week low today and is down 7 cents to $15 after an analyst downgraded the networking giant to Underperform from Outperform. In options action, CSCO July 15 calls are today's most actively traded options contract. 55,700 contracts changed hands through midday. Open interest is 19,523 and 75 percent of the volume has traded at the ask. The contract is at-the-money and therefore has a delta of .50 because there is a 50-50 chance that it will expire in-the-money at the expiration, which is in 31 days. Some investors are likely taking positions in the call options on hopes CSCO might break out of its bearish funk in the weeks ahead. Shares are down almost 26 percent so far in 2011.

JC Penney (JCP) shares are rallying on news the company has hired former Apple Computer (AAPL) Vice President Ron Johnson as CEO. Shares opened at $30.44, but have jumped to $35.33 following the news. Options on the retailer are seeing brisk trading through midday. Call volume is approaching 100,000 contracts. Another 61,000 puts have changed hands. June 32 calls, which were 5.1 percent out-of-the-money at the open, are now 10.4 percent in-the-money and are among the most actives. 12,525 traded. June 34 puts, July 35 calls, and July 36 calls are seeing brisk trading as well.

Bearish Flow
USEC (USU), a Bethesda, MD uranium producer, is trading up 8 cents to $3.49 and moving off the 52-week lows of $3.26 set yesterday. Meanwhile, options in USU are seeing notable volume today. 21,000 puts and 1,050 calls traded in the name so far. One strategist bought 10,000 of the January 2013 $2 puts for an average of 37.5 cents per contract. The January 2.5 puts have also traded more than 10,000 contracts. The stock is already down more than 40 percent year-to-date. Today's put buyers seem to be bracing for additional losses heading into next year and through 2012.

Factset (FDS), a Norwalk, CT financial and economic information service provider, is trading down $4.39 to $99.90 after the company reported a third quarter profit of 92 cents per share, which was in-line with Street estimates. Guidance for the fourth quarter was also in-line with expectations. Shares are down on the results and, in options action, 1,200 puts and 230 calls traded in the name. Typical volume is about 100 contracts. June 100 puts are the most actives and are possibly seeing some closing trades now that the contract is in-the-money. June 95 and 105 puts are seeing some interest as well.

Unusual Volume
JC Penney (JCP) options volume is running 13.5X the (22-day) average, with 137,000 contracts traded and call volume accounting for about 61 percent of trades.

Best Buy (BBY) options volume is 4X the average daily, with 73,000 contracts traded and call volume representing 56 percent of the activity.

Colgate Palmolive (CL) options volume is running 5X the average daily, with 28,000 contracts traded and call volume accounting for 51 percent of the activity.

Increasing options activity is also being seen in USEC (USU), iShares Taiwan Fund (EWT), and Consumer Discretionary Select Sector ETF (XLY).

Implied Volatility Mover
Best Buy (BBY) shares jumped $1.28 to $30.10 and options volume is 4.5X the average daily after the electronics retailer reported a 35-cent quarterly profit, which was 3 cents better than Street estimates. 42,000 calls and 33,000 puts traded in Best Buy through midday. June 32 calls are the most actives. 13,810 traded and, with 81 percent on the bid, some investors are likely closing positions. Open interest is sufficient to cover and the contract, which expires at the end of the week, is 6.3 percent out-of-the-money. Premium selling has implied volatility in BBY options falling 27.5 percent to 30.