Finding Parking for Capital 01-13-2011

Cusick's Corner
There has been a lot of discussion this week concerning where bond investors are parking their capital that they have been taking out of the fixed income market. These bond investors are yield hounds and with stocks on the move, this is leaving their cash returns in the dust. So what can you turn to if you are conservative in nature and desire yield? Take a look at dividend paying stocks. If you desire a little more conservative investment over the outright purchase of individual stocks, then take a look at the ETFs that pay a dividend, i.e. VIG and DVY. These pay roughly a 2-4% dividend and have holdings of some of the highest quality dividend paying names. Plus many are optionable, which means that if you sell calls to open in the months in which the stock is not Ex-Div, you can potentially increase your yield. It can be a nice little strategy that allows you to trade the haystack rather than the needles and allows you to potentially increase your yield by selling premium. We will probably have a busy data day tomorrow -- INTC looks to have beaten earnings by .06, so I want to see how trading reacts during extended hours. See you Midday.

Trading was sluggish, with poor economic data and pre-earnings jitters affecting trade Thursday. Stock market averages traded lower early after the Labor Department reported that filings for jobless benefits increased by 35,000 to 445,000 in the first week of January. Economists were looking for an increase of only 5,000. Separate data showed the Producer Price Index up 1.1 percent in December. Economists were expecting the gauge of wholesale inflation to increase by only .8 percent. The early weakness on Wall Street was short-lived, however, and market action had turned mixed midday. Then, a second wave of selling pressure surfaced in the final 90 minutes of trading and ahead of earnings from two Dow components. Intel (INTC) reports after the closing bell. JP Morgan (JPM) releases results Friday morning. The underlying tone of trading turned cautious ahead of the news. The Dow Jones Industrial Average finished the day down 24 points. The NASDAQ gave up midday gains and settled down 2 points.

Bullish
One of the top equity options trades Thursday was in Ford Motor (F). Shares of the automaker touched a new 52-week high, but gave up early gains and finished down 3 cents to $18.68. Meanwhile, in options action, a noteworthy trade was a buyer of 41,500 February 21 calls at 16 cents per contract. More than 56,000 traded on the session. Some investors might have been closing out positions in January to open new ones in February 21 calls. For example, the January 19 calls, which expire in one week and one day, traded 26,360X. Overall, volume in Ford was impressive. 221,000 calls and 59,000 puts changed hands, according to data from Trade Alert.

Bullish trading was also seen in NVidia (NVDA), Micron Technology (MU), and KLA Tencor (KLAC).

Bearish
Digital River (DRIV) lost 80 cents to $35.60 and options on the Eden Prairie, MN internet software company increased to 15X the average daily levels. 11,000 calls and 890 puts traded on the day. The action was heavily concentrated in the March 36 puts. Volume approached 10,000 contracts. In addition, open interest is only 208 contracts and data from web site WhatsTrading.com indicate that 60 percent of the put volume traded at the ask, which suggests that put buyers were dominating the action. It might be hedging activity or outright bearish bets ahead of earnings, due January 27.

Bearish flow also surfaced in Collective Brands (PSS), NetLogic (NETL), and Yahoo (YHOO).

Index Trading
Overall volume is picking up in the index market, as volatility has increased a little in 2011 and many institutions are now adjusting positions heading into next week's options expiration. 586,000 calls and 562,000 puts traded across the S&P 500 Index (.SPX), the CBOE Volatility Index (.VIX), and the other cash-settled indexes. The Russell 2000 Small Cap Index (.RUT) saw a bit more volume than usual. The index finished the day down .71 to 800.65 and volume hit 2.5X the average daily, with 50,000 calls and 98,000 puts traded on the index. Some institutional players are likely taking positions in RUT puts to hedge stock portfolios, as this index tracks the price action of shares of smaller companies and is a bit more volatile than the S&P 500 or the Dow Jones Industrial Average.

ETF Action
Put volume picked up in the Semiconductor HOLDRS (SMH). Shares notched a new 52-week high and finished the day up one penny to $33.53. Options volume in the exchange-traded fund increased to 51,000 contracts, or 4.5X the average daily. 90 percent of the action was put volume and included a January 33 -32 put spread bought at 17 cents, 8700X on AMEX. This looks like a short-term bearish play ahead of Intel's earnings and might not work out too well. Intel is trading up 1.8 percent in the after hours Thursday after the world's largest chipmaker posted results that topped Street views.