Dips Being Met with Bids 09-20-2010

Cusick's Corner
Every dip is being met with a bid at this stage. Even though this market is at resistance and in some cases at an overbought stage, do not let that fool you into thinking that it cannot continue. The afternoon action could be interesting – this bid may squeeze the shorts and market up, or if resistance of SPX 1138 be too much, especially with the Fed meeting tomorrow, the market may potentially weaken the hands of the longs. See you After Hours.

Major averages are holding gains on a slow news day and ahead of tomorrow's Federal Reserve Open Market Committee [FOMC] rate announcement. The only economic stat of the day showed the NAHB Homebuilders Confidence Index [HMI] flat at 13 in September. Economists were looking for an increase to 14. The market showed little reaction to the news. Instead, a lot of the focus seems to be on tomorrow's FOMC news. While officials are expected to stand pat on rates, there seems to be hope that they will announce plans to relaunch bond buybacks to drive rates lower, spurring lending and business activity. Twenty-nine of the Dow thirty are in positive territory Monday and the Dow Jones Industrial Average is up 100 points midday. The tech-heavy NASDAQ has added 22.5 points. The CBOE Volatility Index (.VIX) is off .23 to 27.23. Trading is very active, with about 4.6 million calls and 3.7million puts traded across the options exchanges through 11:30 ET.

Bullish
A massive spread traded in Sprint Nextel (S) midday Friday. Shares of the telephone service provider added 14 cents to $4.58 and one strategist paid 27 cents for the January 5 – 6 call spread, 100,000X. That is, they bought 100,000 of the January 5 calls at 38 cents each and sold 100,000 January 6 calls at 12 cents apiece. The spread was tied to a block of 2.3 million Sprint shares and looks like an opening position, which seems to suggest the investor expects Sprint to move towards $6 by the January expiration.

Blackstone Group (BX), a New York, NY asset management firm, is up a penny to $10.86 and more than 8,000 calls traded in the name, which is more than double the average daily. October 11 calls are the most actives, with some investors paying 32 and 33 cents to open new positions, according to ISEE sentiment data. More than 4,000 traded. January 11 and 12.5 calls are seeing interest as well. It might be a play on an investor meeting scheduled for later this week.

Bearish
A couple of solar names with increasing put activity Monday. JA Solar (JASO) is one of them. Shares notched a new 52-week high and are up 12 cents to $7.44. Meanwhile, 7,050 puts and 1,630 calls traded in the name. November 7 puts are the most actives. 5,550 traded and, with 77 percent trading at the ask, it appears that put buyers are dominating the action.

At the same time, LDK Solar (LDK) adds 16 cents to $8.18 and today's options volume includes 6,865 puts and 1,625 calls. December 3 and 4 puts are the most actives, with 3,000 and 2,010 traded, respectively. With volume exceeding open interest in both contracts, the action looks opening. If so, it might be shareholders taking out “disaster” insurance, because these contracts are now deep-out-of-the-money.

Unusual Volume Movers
Pfizer (PFE) options volume is running 2X the usual, with 139,000 contracts traded and call volume accounting for about 93 percent of the activity.

Marvel Technology (MRVL) options activity is running 2X the usual, with 49,000 contracts traded and put volume representing 86 percent of the volume.
Walgreens (WAG) options volume is 5X the typical levels, with 41,000 contracts traded and put volume accounting for 88 percent of the activity.

Increasing volume is also being seen in Tennet Healthcare (THC), Medifast (MED), and Pride International (PDE).

Implied Volatility Movers
Medifast (MED), an Owings Mills, MD specialty retailer specializing in weight loss products, is seeing increasing options volume and higher implied volatility. 1,560 calls and 2,225 puts traded in the name, or 7X the typical volume for midday. Meanwhile, shares added 24 cents to $26.89 and implied volatility is up about 4 percent to 56. Looks like some investors are buying premium, looking for the stock to see increasing volatility in the weeks/months ahead.