Expiration Friday 08-20-2010

Cusick’s Corner
The market is really holding up well in the face of the poor economic data this week and the increasing uncertainty of future corporate guidance. As far as the impact of expiration today, while the option volume has been brisk, it is really split in down the middle. There may be a bounce attempt into the final hour, but right now the dog days are going to kick in. See you After Hours.

Stocks are trading broadly lower led by energy-related and technology names Friday. Crude oil lost 1.4 percent and is pressuring shares of many of the oil and drilling companies. Meanwhile, concerns about Europe’s sovereign debt crisis resurfaced after the euro made a run back to 1.269 against the buck, down from 1.282 the day before. Hewlett Packard (HPQ) is also relatively weak, down 2.6 percent, and the biggest loser in the Dow Jones Industrial Average, after investors expressed disappointment with the computer maker’s latest profit forecast. The Dow is down 100 points and the NASDAQ lost 13. The CBOE Volatility Index (.VIX) is up .07 to 26.51. Trading is active due to the expiration, with about 3.9 million calls and 4.4 million puts traded through 12:30 ET.

Bullish
Linear Technology (LLTC) is seeing relative strength and increasing call volume. Shares are up 18 cents to $29.91 after Morgan Stanley added the stock to its tactical research idea list. Options volume is running 4X the average daily, with 4,325 calls and 675 puts traded on the chip equipment maker so far. September 30 calls are the most actives. 3,500 traded and, with 99 percent trading at the Ask, it appears that buyers are driving the action and looking for shares to move beyond $30 through the September expiration.

Activision Blizzard (ATVI) is flat at $11.01 and options volume is 8X the average daily after an investor initiated a massive “risk-reversal” on the video game maker. In morning trading, they apparently bought 25,000 January 15 calls at 11 cents and sold 25,000 January 10 puts at 52 cents. No news on the stock and the trade might be a closing position, as open interest is sufficient to cover in both contracts. Nevertheless, it seems to reflect expectations that the stock will move higher, not lower, through January 2011.

Bearish
Best Buy (BBY) puts are seeing interest. Shares hit a new 52-week low and were recently down 49 cents to $32.17. Options volume hit 3X the average daily, with about 21,000 puts and 5,570 calls traded. August 31 puts are the most actives, with some investors likely closing positions ahead of the expiration. September 25 puts are seeing interest as well with 5,350 contracts traded. These investors might be buying to close out positions in August puts, while selling to open new similar positions in September. If so, the trading isn’t bearish but neutral. By selling $25 puts, they probably expect the stock to hold above that level through the September expiration. If not, they will face assignment and be put the shares at $25.

IShares MSCI EFA Fund (EFA) saw interest early Friday. This fund holds shares of companies from Europe, Asia and the Far East. It is down 62 cents to $50.22 today and one investor apparently initiated a bearish spread in early trading, buying 10,000 of the October 50 puts at $2.31 while selling 10,000 October 45 puts at 86 cents. This spread, at a $1.45 net debit, is a bearish play. It makes its best profits if shares fall to $45 or less by the October expiration.

Unusual Volume Movers
Wells Fargo (WFC) options volume is running 4.5X the usual, with 198,000 contracts traded and put volume accounting for about 90 percent of the activity.

Akamai (AKAM) options activity is running 3X the usual, with 80,000 contracts traded and call volume representing 55 percent of the volume.
Salesforce.com (CRM) options volume is running 7X the usual, with 71,000 traded and call volume representing 52 percent of the activity.

Unusual volume is also being seen in McAfee (MFE), Saks (SKS), and Lennar (LEN).

Implied Volatility Movers
Clean Energy Fuels (CLNE), a provider of natural gas vehicles, is down 3.9 percent to $14.85 and options volume is running 3X the average daily, with 9,960 puts and 1,390 calls traded in the name through midday. The action includes apparent rolling of puts from August 16s to September 15s (selling-to-close August while buying-to-open September) with 3,000 contracts traded so far. Meanwhile, implied volatility has risen about 9.5 percent to 69.