Data Good -- SPY Near Resistance 09-24-2010

Cusick's Corner
Today's data was good; buyers have stepped and the bulls are in control. SPY's trading range today has been 113.65-114.89, once again trading near resistance of SPY 114. Monitor if the shorts garner any push this afternoon and start to challenge longs that went into the market for fear of missing the upside. The optionsXpress Education team is on the road again for a free Saturday workshop in Seattle. Please check out the optionsXpress Events page if you are interested in signing up for that event today. See you After Hours.

Major averages rallied around better-than-expected economic news Friday. Data released before the opening bell showed orders for Durable Goods falling 1.4 percent in August, which was not as bad as the 1.4 percent drop that economists had expected. Excluding transportation, orders rose 2 percent and much better than the .6 percent that economists had expected. Separated data released later showed New Home Sales flat at an annual rate of 288,000 in August, which was roughly in-line with expectations. The Dow Jones Industrial Average opened higher on the Durable Goods report and held its gains through the New Home Sales Numbers. The Dow Jones Industrial Average is up a194 points and the NASDAQ has added 48 through midday. The CBOE Volatility Index (.VIX) is off 2.00 to 21.87. Trading is active and reflects the bullish sentiment, with about 4.4 million calls and 3 million puts traded by 12:30 ET.

Bullish
The biggest options trade so far today is in the iShares Russell 2000 Small Cap Fund (IWM). IWM, which is an exchange-traded fund that holds the same 2000 stocks as the Russell 2000 Small Cap Index, is rallying $1.66 to $66.54 and the trade was a block of 45,000 October 70 calls traded at 27 cents apiece on the ISE. Sentiment data indicate this was a new opening buyer and, if so, this strategist is looking for additional gains for the small caps over the next few weeks. October options expire three weeks from tomorrow.

CSX, the railroad company, is up $1.59 to $55.98, even after being hit with an analyst downgrade. BB&T lowered their rating on CSX to Neutral from Buy Friday. Investors seemed to shrug off the news, as shares are up and options volume includes about 11,000 calls and 1,000 puts. October 60 calls are the most actives. 7,330 traded, including a buyer of 7,160 contracts at 28 cents each, according to a source on the floor.

Bearish
KB Homes (KBH) shares added 44 cents to $12.15 after the homebuilder reported a 2-cent per share quarterly loss. Analysts were expecting a wider 15-cent per share loss. The stock is up on the news, but one strategist seems skeptical of the rally and apparently bought an October 12 – 10 (1X2) put ratio spread at 38 cents, collecting a nickel on the 10s (X2) and paying 48 cents for the 12s. This is a short-term bearish bet, as it makes its best profits if the stock falls to $10 by the October expiration in three weeks.

Archer Daniels Midland (ADM) is seeing relative weakness and increasing options activity. Shares are off 45 cents to $32.56 and options volume is 5X the norm, being led by a writer of 25,000 December 35 calls at 90 cents each. This premium seller might be throwing in the towel on hopes for a rally and offsetting an existing position. Open interest in the December 35 calls is more than 26,000 and currently the largest position in ADM.

Unusual Volume Movers
Nvidia (NVDA) options volume is running 4X the usual, with 107,000 contracts traded and call volume accounting for about 93 percent of the activity.

General Mills (GIS) options activity is running 5X the usual, with 73,000 contracts traded and call volume representing 93 percent of the volume.
Blackstone (BX) options volume is 7X the typical levels, with 41,000 contracts traded and call volume accounting for 98 percent of the activity.

Increasing volume is also being seen in Nike (NKE), Baxter (BAX), and Baker Hughes (BHI).

Implied Volatility Movers
General Mills (GIS) options are actively traded and implied volatility is moving higher Friday. Shares added 2.9 percent to $37.18 and today's options volume includes about 69,000 calls and 5,170 puts. October 37.5 and October 40 calls are the most actives. January calls are seeing interest as well. There's no news to explain the surge in activity, but implied volatility is up about 16 percent 28.5, indicating that the options market is pricing in the possibility for greater gyrations in GIS.