Waiting on Fed Number 06-23-2010

Cusick’s Corner
The market was not happy with the housing data but has retraced the bulk of the pullback into the Midday. Some felt that the action this morning was also flow over from the pullback into the After Hours yesterday, but that pullback was light in volume and buyers are sitting out these dips until we have the FOMC language which is due out at 2:15 ET. The market will be sitting on its proverbial hands until then. See you After Hours.

Stocks slipped on a second day of disappointing housing numbers Wednesday. Data released Tuesday showed sales of existing homes falling to an annual rate of 5.66 million in May, down from 5.79 million in April and much worse than the 6.10 million that economists had predicted. Today’s report, released 30 minutes into trading, showed New Home Sales falling 33 percent to record lows of 300K, down from 446K in April and much worse than the 430K economists had expected. With not much other news to guide the action, the major averages fell on the data and trading is now slowing ahead of the FOMC’s rate announcement, due at 2:15 ET. The Dow Jones Industrial Average is down 15 points and the NASDAQ off 12. The CBOE Volatility Index (.VIX) gained .91 to 27.96. Overall options volume remains light, with about 2.6 million calls and 2.5 million puts traded at 12:00 ET.

Bullish
Research In Motion (RIMM) shares are higher on optimism about the company’s earnings release, due Thursday at the close. RIMM is up 84 cents to $59.51 and bullish sentiment seems to be building in the options market as well. 70,000 calls and 21,000 puts traded so far. July 75 calls are the most actives. 31,000 traded and the activity included morning buyers at 15 cents per contract. These options are cheap because the contract is more than $15 out of the money and expires in a little over three weeks.

Ford Motor (F) calls are seeing some interest ahead of presentation at a Deutsche Bank investor conference this afternoon. Shares are skidding for a 19-cent loss, to $11.03, and the September 12 calls are the day’s most actives. 10,400 changed hands so far. Another 6,755 July 12 calls also traded on the automaker. Implied volatility has risen about 2.5 percent to 46.5, as it appears that some investors are buying $12 calls and looking for Ford shares to roll higher in the weeks ahead.

Bearish
Put volume is picking up in the SPDR Homebuilders Trust (XHB) following two days of disappointing housing numbers. XHB is up 2 cents to $15.25 despite the news. However, in the options, volume is running 2X the average daily, with 18,000 put options traded so far. The volume represents 5X normal and 3X the number of call options traded. August and September 15 puts are the most actives, as some players buy premium to hedge their exposure to the housing industry.

Lexmark (LXK), a Lexington, KY computer component maker, is down 72 cents to $36.83 and 6,750 puts traded in the name so far. The volume represents 7X the typical volume for midday and compares to just 265 call options. The activity is focused on the July and August 36 puts, which are 83 cents out-of-the-money. Looks like some investors are buying these short-term puts and perhaps hedging positions on concerns about possible short-term weakness in the share price.

Unusual Volume Movers
Fifth Third (FITB) options volume is running 6X the usual, with 43,000 contracts traded and put volume accounting for about 85 percent of the activity.

Adobe (ADBE) options activity is running 4X the usual, with 27,000 contracts traded and call volume representing 64 percent of the volume.
Phillip Morris (PM) options volume is running 2X the usual, with 25,000 traded and call volume representing 61 percent of the activity.

Unusual volume is also being seen in Textron (TXT), Lennar (LEN), and Ensco (ESV).

Implied Volatility Movers
PPL shares are up and implied volatility is lower. Put volume in the Allentown, PA electric utility hit 20,000 contracts yesterday after the company announced plans for two offerings, one for 90 million shares of common stock and another of $1 billion of equity unit securities. PPL is up 2.1 percent to $24.75 today, however, and some investors might be unwinding bearish positions (i.e. selling puts), as implied volatility is down nearly 17 percent to 25.