Market Waiting On Unemployment Numbers 06-03-2010

Cusick’s Corner
The market is lower into the Midday, but has had a nice run hitting highs today, ESM10 1105. But, (and there is always a “but”) the volume has been light and the Euro has started to weaken, cutting $1.22, which has impacted the current trade. The light action looks to continue until the Unemployment number is out tomorrow. The President seemingly telegraphed a positive number -- listen to his speech yesterday, bigger players are wary to set positions until we get this data out. See you After Hours.

The major averages opened higher following solid gains in overseas markets, but the early advance fizzled and stocks are back under pressure midday. The table was set for morning gains after equity benchmarks moved broadly higher across Asia and Europe. Japan’s Nikkei rallied more than 3 percent. France’s CAC 40 rose 1.6 percent and paced a broader advance across the euro-zone. In the US, the focus was also on economic news. Early data was mixed. While the Labor Department reported that weekly jobless claims fell a better-than-expected 10,000 in the most recent period, ADP said the economy added 55,000 private sector jobs in May. Economists were looking for the ADP report to show an increase of 60,000. The major averages opened higher on the mixed job news, but then slipped after separate data showed the ISM Services Index unchanged at 55.4 in May and Factory Orders up 1.2 percent in April. Economists were looking for 55.7 from ISM and 1.7 percent increase in orders. The major averages slipped on the data and then followed the euro lower (see Implied Volatility Movers.) The Dow Jones Industrial Average is down 50 points and the NASDAQ is flat. Trading in the options market is on the light side and somewhat defensive, with 3.3 million calls and 3.4 million puts traded at 12:30 ET.

Bullish
Hologic (HOLX) calls are busy. Shares of the company, which develops diagnostics, medical imaging, and surgical products, are up 23 cents to $14.95 and options volume is running 23X the usual. Most of the action is due to one spread trade, where an investor apparently sold 9,000 June 15 calls at 40 cents to buy 9,000 September 17.5 calls at 60 cents each. This looks like a position adjustment or a “roll”, where the strategist is selling-to-close a position in at-the-money June calls to buy-to-open a similar bullish position in September out-of-the-money calls.

Avanir Pharmaceuticals (AVNR), an Aliso, Viejo, CA biotech, is up 4 cents to $2.56. Put options are seeing more volume than usual after an investor sold 2,500 July 2.5 puts at 26 cents each. 3,000 traded total. Since open interest is zero contracts, these put writers appear to be opening new positions. By doing so, they are making a statement that they are willing buyers of AVNR shares at $2.5 through the July expiration. If assigned, they will be “put” 100 shares of stock for every put option sold.

Bearish
Some of the top options trades so far today are in the Select Sector Financial ETF (XLF). The fund, which holds all of the financial names from the S&P 500, is off 19 cents to $14.63 and the top trade is block of 40,000 July 14 puts at 43 cents each. It coincided with 20,000 July 15 puts at 78 cents and 20,000 July 13 puts at 24 cents. It has all the characteristics of a substantial butterfly spread and, if bought, one that reaches its max profits if XLF falls to $14 by the July expiration.

A large block of puts traded in Tellabs (TLAB) Thursday. Shares of the Naperville, IL communication equipment maker are off 18 cents to $7.88 and, in the options, one investor bought a block of 30,000 July 7 puts at 30 cents each. The position was tied to a block of 750,000 TLAB shares and not a straight bearish bet (bought shares and puts.) Rather, it seems to be a volatility play through the July expiration.

Unusual Volume Movers
Applied Materials (AMAT) options volume is running 21X the usual, with 41,000 contracts traded and call volume accounting for about 50 percent of the activity.

Joy Global (JOYG) options activity is running 2X the usual, with 23,000 contracts traded and call volume representing 63 percent of the volume.

Dr. Pepper Snapple (DPS) options volume is running 15X the usual, with 19,000 traded and call volume representing 99 percent of the activity.

Dean Foods (DF), Kroger (KR), and VM Ware (VMW) also have unusual volume.

Implied Volatility Movers
The CBOE Volatility Index (.VIX) is up 1 point to 31.17 and near session highs, as the S&P 500 falls 6 points and session lows midday Thursday. The S&P 500 is 14 points from its best levels of the day and is once again following the euro lower. Against the dollar, the European currency had traded higher overnight, but then reversed direction and was recently down .008 to 1.2170. The decline in the euro is causing volatility on Wall Street because the weakness in the currency is a reminder about the ongoing problems in eurozone debt markets.