Safefty Trades Have Been Hit 02-10-2011

Cusick's Corner
With trade overnight mixed and disappointment from tech giant CSCO, the market looked pretty ominous until the beloved dip bid showed up. This has not returned the market to green but has lifted it off the worst levels of the session. The Claims Data on the surface looked excellent but the reality is a lot of folks who have been impacted by current weather conditions might have been unable to apply. We will have to monitor the data, see if it holds below that 400K over the next few weeks. Right now the safety trade, Bonds, Utilities, Miners have been hit and Tech, Networking, Internet are leading the market. The market needs to break into the green this afternoon for the bid to really garner some conviction. See you After Hours.

Stocks opened broadly lower and market averages are sporting modest losses midday. Economic data was in focus early after the Labor Department reported that weekly jobless claims fell by 36,000 to 383,000 in the week ended February 5. Economists were looking for a decline of about 10,000. Yet, after 8 consecutive days of gains, the Dow Jones Industrial Average struggled at the open following around of mixed earnings news. Cisco Systems (CSCO) is the Dow's biggest loser, falling 13.2 percent, after its earnings outlook was less rosy than analysts expected. Akamai (AKAM) and Pepsico (PEP) are also seeing post-earnings weakness. The Dow Jones Industrial Average is down 29 points. However, the tech-heavy NASDAQ has recovered early losses and is flat at midday. Meanwhile, the CBOE Volatility Index (.VIX) edged up .25 to 16.12 and options action is brisk, with 4.8 million calls and 4 puts traded through 12:05pm ET.

Bullish Flow
American Eagle Outfitters (AEO) has seen a surge of call activity Thursday. Shares hit a low of $14.52 in morning trading, before rallying to a high of $16.34 midday. AEO is now up $1 to $15.70 and options volume is running 6X the average daily. 39,000 calls and 5,000 puts traded on the apparel retailer so far. February 15.5 calls, where volume is approaching 13,000, are the most actives. February 17, March 15, March 16 and March 17 calls are seeing interest well. There is talk today that private equity firms might be eyeing American Eagle. The talk is unsubstantiated, but seems to the catalyst for the rally in the stock and the increased call activity in AEO Thursday morning.

An interesting block of calls was bought in Petrohawk Energy (HK) Thursday morning. Shares of the Houston, TX independent oil and gas company are up 12 cents to $20.14 and an investor bought a block of 18,000 June 30 calls at 13 cents each. Volume is now more than 20,600 and since open interest is only 31 contracts, the action looks opening. It's a high risk-reward play because these calls, which expire mid-June, are nearly 50 percent out-of-the-money.

Bearish Flow
Cisco Systems (CSCO) is reeling and Cisco call options are seeing a day of heavy selling Thursday. Shares lost $3 to $19.04 and options volume surged to 5X the average daily. The networking giant released earnings late Thursday and while the headline EPS number topped expectations, investors and analysts expressed disappointment with the third quarter earnings guidance. Shares are down and options volume is impressive. 635,000 calls and 408,000 puts traded so far. February 19 and 20 calls are the most actives. Some investors are likely liquidating positions on the news. CSCO calls have been very heavily traded in the past week and a half heading up to the results.

The top options trade so far today is a block of 40,000 May 120 puts on the SPDR 500 Trust (SPY). The “Spyders” are trading down 19 cents to $132.08 and the block traded as part of a 1X2 put ratio spread. The strategist bought 20,000 May 130 puts at $3.81 and sold 40,000 May 120 puts at $1.47. This ratio spread, for 87 cents, is likely a hedge. It makes its best profits if shares fall to $120 by the expiration, or about 1,200 on the S&P 500.

Unusual Volume
Akamai (AKAM) options volume is running 6X the average daily, with 107,000 contracts traded and call volume accounting for 58 percent of the volume, according to data from WhatsTrading.com.

EMC options volume is 2.5X the average daily, with 86,000 contracts traded and call volume representing for 93 percent of the activity.

JDS Uniphase (JDSU) options volume is running 3.5X the average daily, with 62,000 contracts traded and call volume accounting for 72 percent of the activity.

Increasing options activity is also being seen in DuPont (DD), Whole Foods (WFMI), and Goodyear Tire (GT).

Implied Volatility Mover
Sequenom (SQNM) implied volatility is easing after the biotech published results from a prenatal diagnosis kit for Down Syndrome. Shares are trading up 58 cents to $7.29 on the news. Options volume is 5X the average daily. 14,000 calls and 1,320 puts traded. Implied volatility is easing about 11 percent to 47.5, a new 52-week low.