Buyers Step Back In 03-17-2011

Cusick's Corner
Buyers stepped back in today after a three day slide. Strong economic reports helped boost moods on Wall Street, temporarily putting aside fears over Japan's crisis. Heavy trading in the iShares Japan ETF (EWJ) continued for another day (see ETF Trading). The CBOE Volatility Index (.VIX) also saw another day of heavy trading and closed at 26 (see Index Trading). Tomorrow is the last trading day for expiring March stock, ETF and a few index options. Please check your remaining March positions tonight and if you have any questions, please be sure to use our Live Chat or call the optionsXpress trade desk early tomorrow. See you Friday.

Stock market averages finished in the green with help from economic news on St. Patrick's Day. Data was in focus early after the Labor Department reported that weekly jobless claims fell by 16,000 to 385K in the period ended 3/12, which was in-line with expectations. However, continuing claims fell by 80,000 to 3706K through 3/5 and that was better than the 3750K that economists had predicted. The CPI rose .5 percent in February, and .1 percent more than forecast. February Industrial Production showed a decline of .1 percent, which was well below the .6 percent increase that economists had estimated. The List of Leading Indicators, which rose .8 percent, was also below expectations (1 percent). However, the Philadelphia Fed Manufacturing Survey for March showed a surprise increase to 43.4. Economists were looking for a decline to 28.1 from 35.9 in February. The overall data seemed to ease some of the recent anxiety about the economic impact from events overseas. Relatively orderly trading across Asia's markets and solid gains from European stock benchmarks helped support higher stock prices on Wall Street as well. At the closing bell, the Dow Jones Industrial Average had recovered 162 of Wednesday's 242-point loss. The tech-heavy NASDAQ lagged its counter-part, gaining just 19 points after falling more than 50 yesterday.

Bullish
Seagate (STX) calls were actively traded today. Shares added 37 cents to $13.23 and 21,000 contracts traded, which compares to put volume of 5,420. March 14 calls, which expire after tomorrow, were the most actives. 7,810 traded. March 13, March 15, April 14, and April 15 calls were busy as well. Some of the action was possibly closing trades, but the overall sentiment seemed somewhat bullish and to reflect expectations for a short-term pop in Seagate shares. The stock will be worth watching tomorrow, as shares are trading up late today after CNBC ran a headline about a possible Samsung for Seagate takeover bid.

Bullish trading was also seen in Citi (C), Medco Health Solutions (MHS), and Level 3 (LVLT).

Bearish
Jazz Pharmaceuticals (JAZZ) shares came under pressure today after its partner, Belgian drug maker UCB, said that the EU hasn't backed Xyrem, a treatment for widespread and chronic pain. JAZZ shares hit a low of $27.91 on the news, but finished the day down 10 cents to $28.57. Options volume rose to 5X the average daily. 3,880 puts and 340 calls traded in the biotech. March 27 and 28 puts, which expire after at the end of this week, were the most actives. Some investors were likely buying these puts on the view that the news would send shares lower ahead of the weekend. However, after the kneejerk reaction, shares quickly bounced and finished the day little changed.

Bearish flow also surfaced in China Integrated Energy (CBEH), Cameco (CCJ), and Cavium Networks (CAVM).

Index Trading
The CBOE Volatility Index (.VIX), which tracks the expected volatility priced into S&P 500 Index options, saw another day of heavy trading. The volatility index gave up 3.03 points to 26.37, but is up 43.7 percent month-to-date. Some investors seem to be bracing for additional gains in VIX, as 571,000 calls and 142,000 puts traded on the index today. April 25, 27.5, 30 and 32.5 calls were the most actives. Meanwhile, the biggest trade of the day is a block of 50,000 April 32.5 calls at $1.05. It was sold as part of a bullish 1X2 call ratio spread. In this trade, the strategist bought 25,000 April 25 calls at $2.25 and sold 50,000 April 32.5 calls at $1.05. The spread is bullish on the VIX, as it offers a max pay-out if VIX settles at 32.5 at the April expiration.

ETF Action
Heavy trading in the iShares Japan ETF (EWJ) continued for another day. Shares added 45 cents to $10.10 and recovered a modest amount of the 14.4 percent loss suffered over the prior five trading sessions. Options volume has been heavy throughout the week and continued Thursday. 368,000 contracts traded in EWJ Thursday and the action was almost evenly split between calls and puts. April 11 calls were the most actives. 78,168 traded and some investors might be taking positions in anticipation of a rebound in Tokyo's equity market over the next four weeks. Others might be selling premium on the view that a move beyond $11, or 8.9 percent, is unlikely during that time.