Jump on Jobs 03-30-2011

Cusick's Corner
The market continued to chop its way higher into the After Hours and the strength continued to be wide spread. Most notably the Small Caps, IWM & RUT, were the leaders and traders like to see these higher beta stocks to be on the move. Market watchers will be focused on Ireland and their stress test results as well as Claims data here in the States pre-market. Trade might lighten up if there are no surprises in front of the Employment numbers due out on Friday. See you Midday.

Stock market averages opened higher and finished with gains Wednesday. Steady trading across Asia and Europe's equity markets helped set a positive tone for morning action on Wall Street. Then, economic data came into focus after ADP reported Wednesday morning that the US economy added 201,000 private sector jobs during the month of March. While the number was slightly less than the 210,000 that economists had predicted, it was not too far off the mark and comes ahead of key jobs data from the Labor Department. Similarly, economists expect Friday's report to show the economy creating about 200,000 jobs this month. Meanwhile, the biotechnology sector was in focus after Valeant Pharmaceuticals (VRX) made an unsolicited $5.7 billion bid for Cephalon (CEPH). Beyond that, there wasn't much market-moving news today. The Dow Jones Industrial Average finished the day up 72 points and has now gained 738 points in the past ten days. The NASDAQ added another 20.

Bullish
Nabor's Industries (NBR) saw impressive options action today. Shares of the Bermudian oil and gas driller touched a new 52-week high and finished the day up 23 cents to $30.07. Options volume included about 16,000 calls/3000 puts, which is 3X the average daily for NBR. May 37 call options were the most actives. 4,100 traded and, with 84 percent of the volume traded at the asking price, it looks like call buyers were driving the action and looking for a rally beyond $37. May 33, 34, 35 and 40 calls were busy as well. All of these contracts are out-of-the-money and expire in 51 days. It is not clear what is motivating the bullish action, as there's no news on the stock. Some investors might be taking positions in anticipation of earnings, which are due around April 20 and probably after the April expiration (but before the May options expire).

Bullish trading was also seen in TIVO, Mosaic (MOS), and Radioshack (RSH).

Bearish
Computer Associates (CA), the Islandia, NY application software developer, finished the day flat at $23.86. Meanwhile, in options action, put volume approached 5,000 contracts, which is 4X more than normal and compares to call volume of less than 300 contracts. Much of the focus was on the August puts. The Aug 22s were the most actives. 2,247 traded. Another 1,920 Aug 21 puts changed hands. In addition, roughly two-thirds of the put volume in CA today traded at the asking price, according to data from web site Whatstrading.com, indicating buyers were dominating the action. There was no news to explain the buying interest in CA out-of-the-money August puts. Some bearish traders might be initiating the trades. Or, shareholders looking to hedge stock might be buying those August puts.

Bearish flow also surfaced in Carnival Cruise (CCL), Elan (ELN), and KB Homes (KBH).

Index Trading
The CBOE Volatility Index (.VIX) continues its recent slide. The market's "fear gauge" lost .45 to 17.71 Wednesday and has now moved lower in nine of the past ten trading sessions. VIX is now 43.3 percent below the multi-month high set two weeks ago. Volume in VIX options is easing as well. On March 16, when the index rallied to 31.28, 609,000 calls and 209,000 puts traded in the volatility index. 261,000 calls and 89,000 puts traded in the VIX today. The May 40 call option were the most actives. More than 40,000 traded after one investor initiated a May 35 - 40 (1X2) call ratio spread, 20000X. That is, they bought 20,000 May 35 calls at 50 cents and sold 40,000 May 40 calls at 30 cents, setting up a bullish spread with a max pay-off if the volatility index rallies to 40 through the May expiration.

ETF Action
iShares Silver Fund (SLV) added 36 cents to $36.53 today after silver (May) added 46 cents to $37.45 an ounce. SLV has rallied nearly 40 percent since late-January. One strategist was active in the exchange-traded fund today and initiated a bearish risk-reversal in SLV October options. They bought 20000 SLV October 33 puts at $2.28 and sold 20000 October 41 puts at $2.26. They paid 2 cents for this combo. It wasn't a straight bearish bet, however, as the position was tied to a block of 1.36 million shares at $36.49. If so, it's not really a bearish play at all, as it makes its best profits if shares settle at $41 at the October expiration.