Market May Look to Challenge Upside Resistance 08-09-2010

Cusick’s Corner
I am getting this Midday out late so I will be brief. The market has built some positive follow through from Friday’s close. At this stage, the market looks like it wants to potentially challenge that upside resistance of 1135 on the S&P and that is even with these intermittent pullbacks. Grains are on the move -- wheat took a hit last week which was an unprecedented move based on some tough fundamentals, droughts, fires, but market players look like they are potentially pulling some profits off the table, MOO ETF pulling back from its recent high of $44.12. See you After Hours.

Major averages are holding modest gains on a slow news day. With no economic data to guide the morning action, the focus was on the day’s stock news. McDonald’s (MCD) is up 1.7 percent and helping the Dow Jones Industrial Average after reporting a 7.1 percent increase in July same store sales. However, Hewlett Packard (HPQ) is weighing on the industrial average after the computer maker lost its CEO amid sexual misconduct allegations. Overall, however, trading has been slow ahead of a Federal Reserve interest rate announcement Tuesday afternoon. The Dow has traded in a 53-point range and is up 35 points midday. The NASDAQ added 11. The CBOE Volatility Index (.VIX) edged up .57 to 22.31 and overall options volume is light, with about 2.6 million calls and 2.1 million puts traded through 11:30 ET.

Bullish
Powershares DB Agricultural Fund (DBA) is up 32 cents to $26 per share following a day of gains in wheat, corn and soybean futures. Shares have now rallied 13 percent over the past two months and some players in the options market seem to be anticipating additional upside in the months ahead. Overall volume is running 2.5X the average daily, led by two blocks of January 30 calls totaling 8,500 (4250 each). They traded at 20 and 25 cents when the bid-ask was 15 to 25 cents and appear to have been initiated by a bullish trader. 13,000 calls and only 200 puts now traded on the exchange-traded fund.

TIVO shares are up 37 cents to $9.05 and options volume is 3.5X the recent average daily on talk of a possible deal with Apple Computer. It’s unconfirmed, but triggered a noticeable reaction in TIVO. Shares saw a morning spike on heavy volume and about 19,000 calls traded in the name, which is 8X typical volume and 70X the number of puts traded. November 12, August 10, November 16, and November 14 calls are the most actives.

Bearish
AMD is off two pennies to $7.43 and options trading is brisk, with about 9,640 calls and 14,000 puts traded on the chipmaker so far. The top trade is a block of 3,177 October 8 puts at the 94-cent asking price, which looks like a buyer initiating the trade. Almost 9,000 October 8 puts now traded. Today’s action also includes an options combo where an investor apparently sold 3,000 January 7.5 calls at 94 cents each to buy 3,000 January 7.5 puts at $1.00, creating a synthetic position similar to selling AMD shares short. Meanwhile, implied volatility in the chipmaker is up 2 percent to 47 today.

Mylan Labs (MYL) is up 45 cents to $18.10 and one of the top options trades on a slow day of market action Monday is a block of 18,500 MYL August 18 calls at 30 cents per contract. It was sold, according to a source on the exchange floor, and appears to be an opening trade, perhaps by an investor looking for shares to fall back below $18 by the August expiration (now just 11 days away.)

Unusual Volume Movers
Hewlett Packard (HPQ) options volume is running 14X the usual, with 247,000 contracts traded and call volume accounting for about 54 percent of the activity.

EBAY options activity is running 2.5X the usual, with 52,000 contracts traded and call volume representing 54 percent of the volume.
McDonald’s (MCD) options volume is running 2.5X the usual, with 38,000 traded and call volume representing 61 percent of the activity.

Unusual volume is also being seen in Comcast (CMCSA), Intermune (ITMN), and Nexen (NXY)

Implied Volatility Movers
Hewlett Packard (HPQ) lost $3.47 to $42.83 and volume surged to 14X the average daily, with 134,000 calls and 114,000 puts traded in the name. Players are actively buying puts and calls on the computer maker after the company’s Chief Executive Mark Hurd resigned amid a claim of sexual harassment. Meanwhile, implied volatility in HPQ options rallied 11 percent to 32.

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