Watchlist Housekeeping 12-27-2010

Cusick's Corner
The major markets remained quiet throughout today's trading session. This slower week may be a good time to do a little Watchlist housekeeping. Update your Watchlist entries in your optionsXpress account by logging into your account and clicking on Account tab > Alert Manager. You might want to delete some symbols that you are no longer following or add others that have been sparking your interest lately. You can have multiple Watchlists too. Consider having separate lists for different purposes – like a Watchlist based on: stocks in a specific sector (or member of an index, ETF), type of product (futures, stocks, indices, ETFs), market sentiment (bullish, bearish, neutral), etc. This will help later when the markets are busier – you can then set up Alerts more quickly or view a Streaming Chart based off of the symbols on your Watchlist. See you Tuesday.

Stocks finished mixed in uneventful trade Monday. With no earnings or economic data to guide the morning action, stocks on Wall Street drifted lower in reaction to news that China unexpectedly raised rates over the weekend. The Shanghai Composite Index lost 2.4 percent and stocks were mostly lower across Europe as well. Consequently, the Dow Jones Industrial Average slipped at the open as well and didn't do much from that point forward. The Dow traded in a narrow 54-point range and finished down 18 points. The NASDAQ gained less than one point.

Bullish Flow
Visa (V) call options were busy amid relative strength in the sector Monday MasterCard (MA) gained $6.35 to $224.65. Capital One (COF) and American Express (AXP) finished with gains as well. Meanwhile, Visa added another $2.08 to $70.81 and is now up more than 6 percent in the past five trading sessions. Some options traders are taking notice. 60,000 calls and 21,000 puts traded on Visa Monday. March 75 calls were the most actives. 9,115 traded and, with 77 percent trading at the ask, it looks like buyers were dominating the flow. January 70, February 75, and April 80 calls were among the most actives as well.

Bullish order flow was also seen in Watson Pharmaceuticals (WPI), Rare Earth (REE), and Macy's (M).

Bearish Flow
Put volume picked up in Career Education (CECO). Shares lost 21 cents to $20.28 and options volume hit 4.5X the average daily, with 4,625 puts and 70 calls traded on the ticker. The action was concentrated in the February 17 puts. 4,028 traded, including a block of 2,000 at 45 cents when the market was 30 to 45 cents. Since there is no existing open interest in the contract, it looks like a put buyer taking a new position and bracing for a move below $17 by the February expiration. A shareholder might have initiated the purchase as a hedge or it might be an outright bearish bet on the for-profit education company. Earnings are expected around February 17 and possibly before the expiration.

Bearish flow also picked up in Tesla Motors (TSLA), Novell (NOVL), and Lions Gate Financial (LGF).

Index Trading
Volume was very light in the index market, as many institutional players are away for the holidays and others were left stranded by a massive storm across the Northeast. 120,000 calls and 157,000 puts traded across the S&P 500 Index (.SPX) and other cash indexes, which is only about 30 percent the normal volume, according to data from Trade Alert. However, while volume was low, implied volatility is picking up. The CBOE Volatility Index (.VIX) added 1.20 to 17.67 and has rallied 14.4 percent over the past two days. The gains in VIX, which tracks the expected volatility priced into SPX options, is a sign that the market is beginning to “price in” the possibility of increasing volatility in early 2011.

ETF Trading
The Energy Select Sector Fund (XLE) saw more than twice the average daily options volume today. Shares finished down 24 cents to $67.17 after crude oil (Feb) lost 72 cents to $90.79 per barrel. In the options market, the top options trade in the ETF was a spread, in which an investor sold 18,000 December Quarterly 66 calls at $1.26 and bought 30,000 January 68 calls at 84 cents. This was likely a roll of a position opened earlier this month ahead of the expiration. Quarterly options expire at the end of each calendar quarter and the Decembers come off the board at the end of this week.