Data Points to Inflation 02-16-2011

Cusick's Corner
Inflation. The market this morning seems to think that inflation may be coming faster than originally anticipated. This was reflected in the PPI numbers that came in shockingly high, mostly due to commodity inflation. This puts further constraints on the consumer and whether or not they can absorb more at the checkout counters while there is still little income growth. In the short-term I am watching the 1337 on the SPX cash and 1334 on the S&P e-mini March futures, these are points where shorts may take advantage of uncertainty. I also believe that the Obama Fiscal Plan is putting some stress on the markets as well. The inventories data on Oil was bullish and Crude has traded above that critical $85 level on the March future, but still not as explosive as one might think. I will be watching if the sellers gain any momentum this afternoon. See you then.

Major averages are holding modest gains on positive stock news and mixed economic data Wednesday. DELL computer is trading up $1.54 to $15.45 after the computer maker reported stronger-than-expected earnings late yesterday. Merger news is also a factor after Sanofi (SNY) and Genyme (GENZ) finalized a long-awaited deal. Family Dollar (FDO) rallied 22 percent after Nelson Peltz's investment firm made a bid for the retailer. On the economic front, data released early showed Housing Starts improving by 14.6 percent to an annual rate of 596,000 in January. Economists were looking for only 540,000. Separately, the latest Producer Price Index showed an uptick to .8 percent in January, and .1 percent hotter than expected. A third piece of data showed Industrial Production falling .1 percent last month. Economists were expecting an increase of .6 percent. Overall, it seems that the day's stock news trumped the mixed economic numbers. The Dow Jones Industrial Average is up 42 points and the tech-heavy NASDAQ has added 15. The CBOE Volatility Index (.VIX) edged up .29 to 16.66 midday. Options trading volumes are running about the typical levels, with 7.2 million calls and 5.2 puts traded through 1:00pm ET.

Bullish Flow
Sirius XM Radio (SIRI) adds 14 cents to $1.82 and options volume is running 2.5X the average daily, with 57,000 calls and 6,060 puts traded in SIRI so far. The top trade is 16,780-contract block of January 2 calls at 28 cents. The market was 26 to 28 cents at the time and so it appears that a buyer initiated the trade. Volume is now approaching 27,000 contracts. March and September 2 calls are seeing interest as well. Some players are taking positions in these $2 calls after Sirius fell 6.5 percent on earnings news yesterday.

Beckman Coulter (BEC) shares are trading up 7 cents to $82.93 and options volume is running 2.5X the average daily. 10,400 calls and 1,480 puts traded in the name so far. Most of the action is in the March 85,000 calls. 10,086 contracts have traded so far and with 100 percent trading at the ask, it looks like call buyers are dominating the action. It's unusual because Danaher (DHR) announced plans to buy the company for $59.7 billion last week. Today's call buyers might be looking for another company to make a higher offer or the call buying might be part of a risk arbitrage strategy.

Bearish Flow
Wells Fargo (WFC) shares are trading down and puts are heavily traded today after the company's CFO Howard Atkins abruptly resigned. Shares lost 52 cents to $33.16 and options volume includes 114,000 calls along with 165,000 puts. The biggest trade of the day is a block of 3,000 March 32 puts bought at 80 cents each. It's an opening traded, according to sentiment data, and possibly a short-term hedge. March 32 calls and February 33 puts are seeing heavy trading as well.

Ciena (CIEN) puts are seeing increasing volume. Shares are up 30 cents to $27.55 and today's volume includes 18,000 puts and 3,530 calls. Much of the action is focused on July puts with strike prices ranging from 14 to 24. The top trade, however, is a block of 1,000 April 24 puts at 78 cents when the market was 76 to 78 cents. Beyond that, the action has been in smaller lots trading on both the bids and offers. The increased put activity comes ahead of the communication maker's March 7 earnings release.

Unusual Volume
DELL options volume is running 8X the average daily, with 287,000 contracts traded and call volume accounting for 65 percent of the volume, according to data from WhatsTrading.com.

Wells Fargo (WFC) options volume is 3.5X the average daily, with 279,000 contracts traded and put volume representing for 59 percent of the activity.

Williams Companies (WMB) options volume is running 5X the average daily, with 183,000 contracts traded and call volume accounting for 68 percent of the activity.

Increasing options activity is also being seen in Marvell Tech (MRVL), Electronic Arts (ERTS), and Deere (DE).

Implied Volatility Mover
Williams Companies (WMB), a natural gas producer, is trading up 66 cents to $27.68 this morning after JP Morgan said a spin-off of the company's E&P unit could spur a 33 percent gain in the share price. Options are also actively traded ahead of earnings, tomorrow morning. 125,000 calls and 59,000 puts traded in the name. Implied volatility is up 13 percent to 43.5.