Spreading Tools in the OX Toolbox 01-06-2011

Cusick's Corner
SPREADING: it's a way to mitigate time, volatility, and premium risk. Here are some tools to consider utilizing before entering a spread. I usually talk about determining market sentiment first – so use our Chart Patterns tool. For assessing volatility, use the Dragon or Volatility View. To review potentially optimal spread strategies, use the Strategy Scan and enter criteria based on your opinion on direction and volatility. Spreads can help us participate when market environments get dicey, i.e. EU banks might be in trouble, Dollar gains strength & Euro weakens, etc., by not jumping in with the herd with single leg options and getting potentially run over. Check out our blog later on today, I will list spread strategies that may be optimal when you have a specific market sentiment and perspective on volatility. Go to http://xpoundblog.com/. See you After Hours.

Stocks are trading mixed with jobs data and retail sales in focus Thursday. Data from the Labor Department released early showed weekly jobless claims increasing by 4,000 to 405,000 in the period ended January 1st. Economists were looking for a decline of about 14,000. The disappointing reading holds more sway than usual because it comes ahead of monthly jobs numbers tomorrow. Meanwhile, Walmart (WMT) is down 48 cents to $53.93 and one of many retailers trading lower on disappointing December sales numbers. The SPDR Retail Trust (XRT), which tracks the share price action of leading retail names, is down 60 cents to $47.17. Meanwhile, the Dow Jones Industrial Average is off 45 points, but the tech-heavy NASDAQ has added 2. The CBOE Volatility Index (.VIX) gained .46 to 17.48. Trading in the options market is active, with 6 million calls and 3.6 million puts traded through 12:20pm ET.

Bullish
Nvidia (NVDA) continues to see heavy trading. Shares, which rallied on an analyst upgrade yesterday, are up another $1.32 to $18.30 today and the best gainers in the NASDAQ 100. The stock is rallying around positive broker chatter after the company announced plans to team up with Arm Holdings (ARMH) to develop a chip that competes with Intel (INTC). NVDA shares and options volume surged on the news. 121,000 calls and 44,000 puts traded on the chipmaker through midday. January 15, 16, 17.5 and 19 calls are seeing brisk trading. January 17.5 puts are busy as well.

Aetna (AET) is the subject of bullish trading after DB upgraded the managed care sector, including Aetna. Shares gained 65 cents to $32.15 and options volume is running 5X the average daily, with 20,000 calls and 1,617 puts traded on the insurance company so far. The top trade is 14,500 April 33 calls at $1.37 and a buyer, according to a source on the exchange floor. It wasn't a straight bullish bet, however, as it was tied to a position in 675K shares.

Bearish
Put volume is picking up in the SPDR Retail Trust (XRT), as shares sink on disappointing December same store sales numbers. XRT is now off 63 cents to $47.12 and options volume includes 29,000 puts and 3,200 calls through midday. The top trade was part of a spread, in which an investor apparently paid 40 cents per contract for 5,400 January 46 puts and collected 10,800 January 45 puts at 20 cents. This 2X1 put ratio spread, at even money, is a bearish play. It makes its best profits if shares fall to $45 by the January expiration, in 15 days.

China Green Agriculture (CGA) has lost 74 cents to $7.34 and options volume is running 4X the average daily. 5,870 puts and 1,234 calls traded in the name. June 5 puts are the most actives. Jan 8 and Mar 5 puts are seeing interest as well. Volume and volatility started picking up in the name yesterday after analysts at a brokerage firm warned that CGA might be overstating its earnings and revenues.

Unusual Volume Movers
Nvidia (NVDA) options volume is running 4.5X the usual, with 156,000 contracts traded and call volume accounting for 76 percent of the activity, according to data from website WhatsTrading.com.

GM options activity is running 2.5X the usual, with 116,000 contracts traded and call volume representing 67 percent of the volume.

Yahoo (YHOO) options volume is 3X the typical levels, with 110,000 contracts traded and call volume accounting for 88 percent of the activity.

Increasing volume is also being seen in Target (TGT), American Eagle (AEO), and AT&T (T).

Implied Volatility Movers
Dryships (DRYS) implied volatility is moving up amid heavy trading in DRYS calls and relative strength in the stock. Shares are up 9 cents to $5.47 and 36,000 call options traded in the name, which compares to 2,115 puts. Jan and Feb 5 calls are seeing brisk trading. Implied volatility has risen 4 percent to 55 percent.