Energies Impressive 06-14-2010

Cusick’s Corner
As I write this into the close, the market has hit a patch of resistance at the highs but there has not been any noticeable selling that would be breaking this current up trend. One of the more impressive sectors as of late has been Energy (XLE). Despite the issues in the Gulf, BP, and the pullback in Crude, this sector has been on the upside for more than the last 5 sessions, contrary to the general market movement which is a possible sign of leadership and strength. With the market still holding key support, 1088 on the SPX, I want to see if renewed buying strength hit this market for the near-term. See you Midday.

Stocks gave up early gains and finished with modest losses Monday. The table was set for early strength on Wall Street following gains in Europe’s equity markets and a rally in the Euro. Europe’s stocks and the European currency rallied around better-than-expected April industrial production data. France’s CAC 40 Index paced the advance with a 1.9 percent rally and the Euro moved back towards the 1.23 handle. However, news that Moody’s downgraded Greece’s debt rating to junk sent the Euro back towards 1.225 late Monday. The Dow Jones Industrial Average also faltered on news of the downgrade, and then fell into the red during the final hour. At the closing bell, the Dow was down 20 points. The NASDAQ finished flat.

Bullish Flow
CF Industries (CF), a Deerfield, IL chemicals company, finished down $3.27 to $62.08 and options volume rose to 2.5X the average daily, with about 11,000 calls and 4,770 puts traded on the day. One spread trade accounted for a good chunk of the volume after one investor apparently sold 2,250 August 50 puts at $1.15 and paid $1.27 for August 70 – 80 call spreads, 2250X (bought 2,250 August 70 calls and sold 4,500 August 80 calls). This strategist is apparently a willing buyer at $60 per share (because they are short puts at the 60 strike) and a willing seller of CF at $80 (as they are short 2X more CF August calls).

Bullish order flow was also seen in Las Vegas Sands (LVS), Canadian Natural Resources (CNQ), and JetBlue (JBLU).

Bearish Flow
Pioneer Natural Resources (PXD) edged up in morning trading and touched a new 52-week high of $72.59. From that point forward, however, shares drifted lower before closing down 46 cents to $69.64. In options action, volume hit 4X the average daily. 8,715 puts and 1,265 calls traded on the session. June 70 puts were the most actives. 4,500 contracts traded and, with 85 percent traded ask-side of the bid-ask spread, put buyers were dominating the action and apparently taking positions in anticipation of the weakness in PXD. It’s short-term in nature, as June options expire at the end of this week.

Bearish flow also picked up in Lexmark (LXK), AMD, and BMC.

Index Trading
The CBOE Volatility Index (.VIX) hit a morning low of 26.98, but after a late day market slide finished down just .21 to 28.58 and not far from session highs. In options action, an interesting spread surfaced in morning trading when an investor apparently bought 21,000 July 27.5 puts at $2.39 each and sold 42,000 July 22.5 puts at 50 cents each. This 1X2 put ratio spread is a bearish play on the volatility index, as it makes its best profits if VIX falls to 22.5 between now and the July options expiration.

ETF Trading
The top options trades of the day Monday surfaced in the iShares Emerging Markets Fund (EEM) during the morning hours. Shares of the exchange-traded fund hit a morning high of $39.55, but finished the day flat at $38.77. In options action, the big trades included a June 38 – July 37 put spread that traded at 69 cents, 120,000X. It appears to be a roll of bearish puts, or a hedge, from June to July and down to the 37 from the 38 strike price. That is, the investor sold-to-close a position in 120,000 June 38 puts to buy-to-open a new position in 120,000 July 37 puts.