Market Stays Choppy 03-08-2011

Cusick's Corner
The market continues to stay in this choppy range, so what's a potential strategy? Volatility is below 20, relatively low, and market sentiment, based on the AAII, is Neutral. A strategist who has cash and is looking to participate could review buying straddles/strangles or selling at-the-money butterflies. The straddle/strangle strategy takes advantage of buying cheap premium but needs a big move to pay off because you are buying both options. Selling the three-legged fly means selling the wings and buying the middle strike. The max profit is the net premium received and is realized when price of underlying is less that the lower strike price sold OR above the higher strike price. This is a little more sophisticated and if the market does tighten up the consolidation, these strategies could suffer. See you After Hours.

Stocks are broadly higher on a relatively light news day. With no economic data to guide the market, a lot of the focus remains on the oil market. April WTI crude, which rallied towards $107 yesterday, hit a low of $103.33 Tuesday morning and is down 73 cents to $104.71 after OPEC pledged to pump more oil. Meanwhile, BofA (BAC) is the best gainer in the Dow Jones Industrial Average, up 4.5 percent, and giving the financials a lift after an analyst said the bank might soon raise its dividend. BofA is one of 29 Dow stocks trading higher and the industrial average added 147 points. McDonald's (MCD) is the only Dow loser after the fast food chain reported a 3.9 percent increase in February same store sales. MCD is off 1.3 percent. The tech-heavy NASDAQ gained 28.5 The CBOE Volatility Index (.VIX) is off 1.27 to 19.39. Overall options volume is running about the typical levels, with 5.1 million calls and 4.1 million puts traded through 12:30pm ET.

Bullish Flow
Sprint Nextel (S) is seeing relative strength and increasing options action on media reports that the company is in talks about a potential deal with T-Mobile. Sprint has not commented on the chatter, but the stock is up 17 cents to $4.64 and today's options volume includes 72,000 calls along with 5,580 puts, which is more than double the average daily. May 5 calls have traded more than 17,000 contracts and are the most actives. March and April 5 calls are seeing heavy trading as well. These $5 calls are 7.8 percent out-of-the-money after today's move higher in Sprint shares.

Autodesk (ADSK), a San Rafael, CA technical software company, is trading up 70 cents to $40.81 and options volume is more than twice the average daily. 8,750 calls and 450 puts traded in Autodesk so far. March 43 calls are seeing the bulk of the flow. 7,270 traded. 76 percent traded at the ask and open interest is 14,278. So, it looks like call buyers are driving the action, but some of the activity might be closing because open interest is sufficient to cover. March options expire at the end of next week. No news on the stock.

Bearish Flow
Temple Inland (TIN), an Austin, TX packaging and building products company, is trading up 57 cents to $23.25 and some investors are showing interest in March puts in the name for a second day. Open interest in TIN puts increased by 9,780 contracts following yesterday's action, with Mar 22 puts seeing the bulk of the action. Today, again, the March 22 puts are busy. More than 5,000 traded, including a 2,500-contact block at 50 cents when the market was 35 to 55 cents. Looks like a buyer, possibly adding to yesterday's positions and looking for shares to fall below $23 before the expiration at the end of next week. No news on the stock to explain the action.

Coinstar (CSTR) is trading down $1.54 to $43 and some investors are showing interest in CSTR puts on reports Warner Brothers will begin offering movies for rent or purchase over Facebook. March 40 puts are the most actives. 2,300 traded through midday. 94 percent trading at the ask and open interest of 5,347. Implied volatility is up 6 percent to 50, as some investors appear to be bracing for additional short-term volatility in CSTR shares.

Unusual Volume
Sprint Nextel (S) options volume is running 2X the (22-day) average, with 77,000 contracts traded and call volume accounting for 93 percent of the volume.

TIVO options volume is 3X the average daily, with 67,000 contracts traded and call volume representing for 71 percent of the activity.

H&R Block (HRB) options volume is running 4X the average daily, with 28,000 contracts traded and call volume accounting for 87 percent of the activity.

Increasing options activity is also being seen in BHP. Human Genome Sciences (HGSI), and Radioshack (RSH).

Implied Volatility Mover
Human Genome Sciences (HGSI) implied volatility is moving higher, as players in the options market are bracing for the Food and Drug Administration [FDA] final decision on Benlysta. The FDA is expected to decide whether or not to approve the Lupus drug around March 10. Shares are down 18 cents to $25.56 and today's volume includes 17,000 calls, 27,000 puts. March 15 and 20 puts are the most actives and implied volatility is moving up 6 percent to 90, up 14 percent on the week.