Momentum Building 06-14-2010

Cusick’s Corner
What a difference a weekend makes. With the Euro up and the Eurozone up, the market continues a nice bullish trend into the Midday. The major market averages are challenging resistance, SPX 1100, and if we can get some momentum into the After Hours, this rally could garner some more momentum to the upside. With the volume decent and Volatility now sub-30, there is momentum, potentially putting stress on the shorts and triggering a nice pop into the After Hours.

Stocks are broadly higher following a day of gains in Europe’s equity markets and a rally in the Euro Monday. With very little domestic news to guide the morning action, the focus was across the Atlantic where better-than-expected April industrial production data helped send European equity markets higher. France’s CAC 40 Index paced the advance with a 1.9 percent rally. The data helped lift the Euro as well. The European currency was recently up.0106 to 1.2285 against the buck. Meanwhile, on Wall Street, the Dow Jones Industrial Average marched higher early and is up 84 points midday. The CBOE Volatility Index (.VIX) sank 1.57 to 27.22. Options volume is running about typical levels, with about 3.6 million calls and 3.8 million puts traded at 12:20 ET.

Bullish
National Oilwell (NOV) is 29 cents to $37.82, as some of the oil drillers bounce back with help from bubbling crude oil prices Monday. Crude was recently up $1.77 to $75.55 a barrel. In the options market, one player appears to be looking for additional upside in NOV. Morning trades include the apparent purchase of 5,000 June 40 calls at 20 cents financed by the sale of 5,000 June 25 puts at 25 cents. This “risk-reversal,” at a 5-cent net credit, is a short-term play. June options expire at the end of this week.

JetBlue (JBLU) shares hit a new 52-week high and are 39 cents to $6.89 after Deutsche Bank initiated the stock with a Buy rating and BofA/Merrill upgraded the stock to Buy from Neutral. While investors were indeed buying shares on the upgrades, options players were snapping up June 6 calls, with 1,400 traded. January 7.5 calls saw interest as well. 4,920 JBLU calls and 255 puts changed hands through midday.

Bearish
The biggest options trades so far today have been in the IShares Emerging Markets Fund (EEM). Shares are up 53 cents to $39.29 after global equity markets moved broadly higher to start the week. In options action, the big trades in EEM 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.

Lexmark (LXK), the Lexington, KY computer maker, is up 20 cents to $37.70 and options volume is 2X the average daily, with 6,340 puts and 315 calls traded so far. The action includes a block of 2,750 July 36 puts at the $1.45 ask price, which looks like a buyer opening a new position. 5,710 contracts traded total and some investors might be buying puts to hedge shares ahead of earnings expected in mid-July.

Unusual Volume Movers
Best Buy (BBY) options volume is running 2X the usual, with 27,000 contracts traded and call volume accounting for about 59 percent of the activity.

Mattel (MAT) options activity is running 13X the usual, with 16,000 contracts traded and call volume representing about half of the volume.

Commercial Metals (CMC) options volume is running 6X the usual, with 14,000 traded and call volume representing 96 percent of the activity.

Unusual volume is also being seen in Aruba Networks (ARUN), Johnson Controls (JCI), and Cablevision Systems (CVC)

Implied Volatility Movers
Amylin Pharmaceuticals (AMLN), a San Diego, CA biotech, is up 6.2 percent to $18.07 and puts are actively traded Monday. 4,229 contracts traded through midday, which is 4X typical volume and more than 2X the number of calls traded. The increased options activity and relative strength in the stock comes after Asterand announced a one-year collaboration with the company and after Piper Jaffray upgraded shares to Overweight. Meanwhile, implied volatility is running 5.5 percent higher, to about 59.5.