Valentine's KISS 02-14-2011

Cusick's Corner
KISS: Keep It Simple – it's low volume on this grind to the upside, the market is overbought and commercial traders are pulling off their hedges (specifically in the NAZ and DOW futures), all going to put your discipline and your plan to test. Now those of you who have been winging it by going long but with no plan, you will be the first to go when there is a moment of doubt. Some might ask when that moment is. I am looking for a blow-out that breaks the upper channel range on a major index, one that resembles the breakout that we saw on November 4, 2010, and watch how the market reacts at that stage. So have the plan in place. See you After Hours.

Stocks are struggling to find direction on a slow news Monday. With no economic data or earnings of significance to guide the morning action, some of the early focus was on the Obama administration's $3.73 trillion budget overhaul, which includes a 5-year domestic spending freeze. However, the news didn't cause many waves on Wall Street. Twelve Dow stocks are higher and eighteen lower through midday. Walmart (WMT) is the Dow's biggest loser after JP Morgan downgraded the retailer. The industrial average is off 5 points. However, the tech-heavy NASDAQ has added 8.4. The CBOE Volatility Index (.VIX) is up .15 to 15.84. Options volume is on the light side, with 5.4 million calls and 3.6 puts traded through 12:30pm ET.

Bullish Flow
Freeport McMoran (FCX) is seeing relative strength and increasing call activity Monday. Shares of the gold and copper miner gained $2.66 to $56.18 amid strength in the sector today after gold gained $4.5 to $1,365 an ounce. Meanwhile, 62,000 calls and 20,000 puts traded in the name so far. The top trade is a block of 2,454 March 55 calls at $3.20 this morning on ISE, where sentiment data indicate a customer bought-to-open a new position. 9,000 now traded. February 55s are the most actives. 16000 changed hands.

AMD shares are trading up 40 cents to $8.68 and call activity is picking up in the chipmaker today. 45,000 contracts traded, which is 4X the typical levels and compares to put volume of 11,000 contracts. Data indicate that investors are buying-to-open new positions in March 9 calls. Volume is approaching 18,000 contracts. February 8 and 9 calls are busy as well. There is takeover chatter circulating in the name. While it is unsubstantiated, the talk might be the catalyst for the strength in the stock and the higher levels of call volume in AMD today.

Bearish Flow
Viacom (VIA/B) shares are trading down a nickel to $45.09 and two blocks of March 47 calls trade in the New York-based cable TV company today. 10,000 traded at 25 cents when the market was 25 to 40 cents. Another 10,000 traded at 30 cents. Open interest is only 7 contracts and the activity looks like an opening call writer, perhaps a bet that shares will see limited upside over the next few weeks. The company announced plans to raise $500 million by issuing 10-year notes today.

Masco (MAS), a Michigan construction company, is due to release earnings later today. Shares are unchanged at $14.17 ahead of the news, but implied volatility in MAS options is moving up 6.5 percent to 52. Meanwhile, February 14 puts have traded 5,300 contracts. The top trade is 3,000 at 53 cents and an opening buyer, according to data from the International Securities Exchange. One or more investors might be buying puts to bet on disappointing earnings or perhaps to hedge a position in MAS stock ahead of the news.

Unusual Volume
Blackstone (BX) options volume is running 5X the average daily, with 57,000 contracts traded and call volume accounting for 97 percent of the volume, according to data from WhatsTrading.com.

DELL options volume is 2.5X the average daily, with 56,000 contracts traded and call volume representing for 79 percent of the activity.

JDS Uniphase (JDSU) options volume is running 3X the average daily, with 74,000 contracts traded and call volume accounting for 70 percent of the activity.

Increasing options activity is also being seen in Novartis (NVS), Deere (DE), and Expedia (EXPE).

Implied Volatility Mover
Deere (DE) options are actively traded and implied volatility is on the move ahead of earnings. Shares are trading down 26 cents to $95.16 and options volume is 23,000 calls and 9,740 puts. February and March 95 and 100 calls are the most actives. Implied volatility is moving up 7 percent to 29 ahead of the results that are due Wednesday morning.