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War Eagle 02-17-2012

jcusick — Fri, 17 Feb 2012 14:36:48

Cusick's Corner
There is just no selling pressure in this market. While we are hovering around at breakeven, S&Ps +2.0, the retail side is not over exuberant with bullishness. If you look at the Put/Call ratio, CBOE Composite at .787, this is telling me that there is not a ton of call buying. So from a contrarian perspective there is nothing that would flag too much bullishness. This is a positive for a market that has been parabolic. The Retail sector, XRT, continues to perform and the Consumer, XLY, continues to exhibit strength which is a huge catalyst for growth and the sentiment in the market. I expect a grind into the close on this expiration Friday; traders will be cleaning up loose ends into the long weekend. I will be watching the NASDAQ, weakness hit early but it has firmed up -- I want to see if the bulls will fight back in Tech, fight on "War Eagle!" (this one's for Mark).

Market action is mixed on expiration Friday. Economic news was in focus early after a report showed the Consumer Price Index up .2 percent in January, which was .1 percent less than expected. The List of Leading Indicators for January was released later and rose .4 percent in January, which was .1 percent less than economists had expected. The data seemed to have little market impact and investors are keeping a close eye on events overseas. While Japan's Nikkei jumped 1.6 percent overnight after Thursday's strong rally on Wall Street, stock market averages finished broadly higher across Europe as well. Germany's DAX helped pace the advance with a 1.4 percent gain amid hopes EU officials will approve a Greek bailout package. However, after a triple-digit rally pushed the Dow Jones Industrial Average to multi-year highs Thursday, overall market action has turned mixed through midday Friday. The Dow is up another 27 points, but the NASDAQ lost 11.4 points. CBOE Volatility Index (.VIX) is down 1.05 to 18.17. Trading is active due to the expiration, with 6 million calls and 4.2 million puts traded through 12:30pm ET. Today is the last day to trade February 2012 options contracts.

Bullish Flow
32,000 calls and 7,125 puts traded on EBAY today. Shares are up 23 cents to $34.74 and the top trades are part of a spread, in which the strategist apparently sold 8,000 April 34 calls on the stock at $1.95 per contract and bought 14,500 April 36 calls for $1.01. Looking at the open interest, it appears that the sale of April 34 calls might be a closing trade. At the same time, the block of April 36 calls appears to be a new position. So this call ratio spread is possibly a roll up on strikes. That is, after a 23 percent rally in shares since late-November, the strategist might be closing a position in in-the-money calls on EBAY to open a new larger position in the Apr 36s, which are out-of-the-money. If so, this position adjustment seems to reflect the view that the recent rally in EBAY can continue through the April expiration, which is in 63 days.

A lot of activity in the options market Friday is due to rolling ahead of the February expiration. An example is in Harman International (HAR). Shares of the Stamford, CT electrical equipment company are up 64 cents to $50.92 and in morning trading, 1000 Feb 50 calls were apparently sold on the stock at 90 cents to close a position ahead of the expiration. Meanwhile, a new bullish position in Mar 52.5 - 55 call spread was apparently bought for 90 cents, 1000X. In essence, the strategist was selling the Feb premium to buy a March call spread and maintain bullish exposure in the name for an additional four weeks.

Bearish Flow
A large block of puts trades on AT&T (T) today. Shares have added 3 cents to $30.05 and a 24,000-contract block of April 25 puts was bought on the phone company for 10 cents per contract. More than 31,000 contracts have now traded. Open interest is 8,320 and so the flow appears to be new position in these puts. The contract is deep out-of-the-money and so the action seems somewhat unusual. Shares have not traded south of $25 since August 2012. A large shareholder might have initiated the trade as a form of protection or insurance to hedge stock.

A large block of calls trades on the SPDR Financial ETF (XLF) Friday. Shares, which hold all of the financial-related names from the S&P 500, added 6 cents to $14.75. Quiet trading continues. Meanwhile, in early options, one investor sold a hefty block of 175,000 May 16 calls on XLF for 21 cents per contract. 200,000 were sold total and appears to be opening activity. If so, an investor might have sold the calls against shares as part of an overwrite strategy or the call write might be an outright view that XLF will not move beyond $16 through the May expiration, or a 8.5 percent gain during the next three months.

Unusual Volume
Baidu.com (BIDU) options volume is running 2X the (22-day) average, with 174,000 contracts traded and call activity accounting for 63 percent of the volume.

Gilead Sciences (GILD) options volume is 6X the daily average, with 107,000 contracts traded and call volume representing 51 percent of the activity.

SPDR Homebuilders Trust (XHB) options volume is running 3X the average daily, with 75,000 contracts traded and put volume representing 97 percent of the total volume.

Increasing options activity is also being seen in Devon Energy (DVN), Vivus Pharmaceuticals (VVUS), and Allstate (ALL).

Implied Volatility Mover
Levels of implied volatility in Frontier Communications (FTR) are coming down sharply after the Stamford, CT telecom reported earnings after the closing bell Thursday. The results were slightly better than expected and the company also announced plans to cut its dividend. Shares have added 16 cents to $4.63 and are on a three-day 14 percent winning run higher. Still, the stock had been battered throughout most of 2011 and is down about 50 percent from the levels seen in a year ago. Today's option trading in FTR is brisk, with 53,000 calls and 2,810 puts traded on the stock so far. March 4 calls, which had seen substantial volume heading into the report, are the most actives. 30,000 traded, as some investors may have been liquidating positions on the earnings news. Levels of implied volatility are falling sharply, down 40 percent to 49.

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Could this Close be Healthy? 02-15-2012

jcusick — Wed, 15 Feb 2012 18:57:49

Cusick's Corner 02-15-2012
I have been talking more and more about correlated assets and how some highly correlated assets are starting to diverge. I have been watching the Japanese markets running to the upside and I looked at the bond yields, specifically the 10 yr, and they have been moving together until now. If the Japanese markets continue to run and the correlation is still valid, 10 yr yields should be bouncing and that would be a potential catalyst for the bulls. With Tech, QQQ, breaking late in the day, the S&Ps and RUT followed under the pressure. See you Midday.

Stock market averages slumped on mixed economic news and amid ongoing concerns about the Eurozone Wednesday. Trading was orderly early after the NY Empire State Index of manufacturing activity showed an increase to 19.5 in February, from 13.5 last month and significantly better than the 14.0 that was expected. News that China was set to offer additional financial assistance to the Eurozone also helped sentiment in morning trading. However, the day's other news was mixed. Industrial production was flat in January. A .6 percent increase was expected. A third piece of data showed the NAHB Index of Homebuilder Sentiment jumping to 29 in February, from 25 the month before and significantly better than the 26 that was expected. Investors seemed unimpressed with the data. While the NASDAQ was sporting a modest gain in late-morning trading, the Dow was showing a modest loss. Then selling pressure was notable shortly after 1:00 pm ET. The catalyst for the midday weakness was not obvious, as there didn't seem to be any major news items on the wires. Apple Computer (AAPL) saw very volatile action. The stock, which hit a record high of $526.29 early, tumbled to a low of $496.89 on heavy volume. The decline weighed on the NASDAQ. Meanwhile, Fed minutes from the latest rate policy meeting offered little new information. Fed officials were divided on whether or not another round of bond buybacks will be needed. Stock market averages were already under pressure before the minutes made the rounds and failed to bounce into the close. At the end of the day, The Dow had lost 97 points. The NASDAQ erased morning gains and finished down 16 points.

Bullish
Kellogg (K) saw relative strength and high call volume today after the company ironed out a deal to buy the Pringles brand from Procter and Gamble. Kellogg shares added $2.57 to $52.87 and options volume jumped to 8X the daily average. 19,000 calls and 4,500 puts traded on the stock. February 52.5 calls, which are now 37 cents in-the-money and expiring at the end of the week, were the most actives. 8,520 contracts changed hands. Investors also snacked upon Kellogg March 52.5, March 55 and June 55 calls. Some players were probably buying short-term at-the-money and out-of-the-money calls on hopes for additional gains in the underlying in the weeks ahead. Prior to today, shares had been chopping around in a range for several months, but did add 2.6 percent on Feb 2 after earnings were reported. K is now up 6.9 percent month-to-date and at its best levels since November 2.

Bullish trading was also seen in Decker Outdoor Products (DECK), Liz Claiborne (LIZ), and Cablevision Systems (CVC).

Bearish
Corinthian Colleges (COCO) added a dime to $4.88 and has staged an impressive 61 percent surge so far in February. Noteworthy options trades on the for-profit education company today included a massive strangle. In this strategy, the investor sold 24,000 August 4 puts on COCO at an average of 28.5 cents and sold 24,000 August 6 calls at 29 cents. In other words, the strategist wrote an Aug 4 - 6 strangle at an average 57.5 cents per strangle. The trade will create the largest blocks of open interest in COCO. The strangle write is not necessarily a bullish or bearish play, but a view that the underlying stock will stay between the two strike prices through the expiration. The maximum potential gain from the position is the credit received for selling the premium. There are risks from a move higher or lower in the underlying, because the options are sold "naked" and not covered by another position.

Bearish trading was also seen in Earthlink (ELNK), Chimera Investments (CIM), and Quest Diagnostics (DGX).

Index Trading
CBOE Volatility Index (.VIX) saw a sizeable move Wednesday. The market's so-called "fear gauge" hit a high of 21.77 and finished up 1.60 to 21.14 amid ongoing worry about the European debt crisis. Greece is inching along in negotiations with creditors, but no decisive deal has been reached ahead of a March deadline to avoid a debt default. The uncertainty seems to be keeping a bid under the volatility index. Meanwhile, VIX February options expired today and the settlement was 20.44. Upside 30, 35 and 55 calls had the largest open interest positions in the index ahead of the expiration. All three contracts expired worthless. March 24, 29 and 35 calls were the most actives in the index today, as some investors were probably opening new positions in March after February call options had expired. The flow included a hefty premium purchase, in which the investor bought 20,000 March 29 calls and 20,000 March 35 calls on the volatility index, possibly opening a new position to hedge risk of higher volatility in the weeks ahead.

ETF Action
A hefty spread traded in the iShares Small Cap Fund (IWM) Wednesday. Shares lost 34 cents to $81.61 and a March 74 - 80 put spread was bought on ETF for $1.25, 40000X. In this play, the strategist bought 40,000 March 80 puts for $1.89 and sold 40,000 March 74 puts at 64 cents. The spread was possibly initiated to hedge the risk of a downturn in the Russell Small Cap 2000 names in the weeks ahead. IWM has rallied more than 22.4 percent since late-November. The Mar 74- 80 put spread will offer its best pay off if shares fall to $74 or less through March, which represents a 9.3 percent decline, or a 50.5 percent retracement of the recent advance, over the next 30 days.

Even with a Huff and a Puff - Market Not Down Much 02-15-2012

jcusick — Wed, 15 Feb 2012 15:27:40

Cusick's Corner 02-15-2012
I have talked about this type of market in the past where the risk in the upside, or more specifically with missing the upside, is the risk. While yields in bonds are still not moving and are up pricewise, the S&Ps were able to break 1350. If this can hold into the close then this could keep the strength in the bid. I do not want to see a close below 1350 at the end of day because this may put into further question the current upside. Some of the big money may be sweating right now, and if there is a move to the upside then this might create some type of buying frenzy similar to what can be seen in a short squeeze. See you After Hours.

Stock market averages are lower through midday. Economic news was in focus early and included a NY Empire State Index of manufacturing activity, which was up to 19.5 in February, from 13.5 last month and significantly better than the 14.0 that was expected. However, industrial production was flat in January. A .6 percent increase was expected. A third piece of data showed the NAHB Index of Homebuilder Sentiment jumping to 29 in February, from 25 the month before and significantly better than the 26 that was expected. Market averages were mixed through most of the morning action on the data. However, a modest round of selling pressure surfaced around Noon Central Time and sent market averages to session lows. The catalyst for the midday turnaround in snot clear, but Apple Computer (AAPL), which hit a record high early of $526.29 early, saw a sharp reversal and is down $1.55 to $50.7.63. The turnaround in Apple helped push the NASDAQ into negative territory. The NAZ is down 1.4 points. The Dow Jones Industrial Average was under water throughout morning trading and is now down 85 points midday. CBOE Volatility Index (.VIX) added 1.77 to 21.31. Overall options volume is picking up to the best levels so far this week, with 5.1 million calls and 4.7 million puts traded through 12:35pm ET.

Bullish Flow
Deckers Outdoor Products (DECK), a Goleta, CA footwear manufacturer, is rallying amid increasing options volume today. Shares, which had suffered a four-day 7 percent slide prior to today, are up $3.87 to $85.05 with 1.5 million shares traded. Typical volume through midday is about 840K. Meanwhile, 12,000 calls and 2,950 puts traded on the stock. February 85 calls, which are now at-the-money after today's rally, are the most actives. 3,680 traded. 1,250 February 87.5 calls have changed hands. The interest in February upside calls on DECK is interesting because the contracts expire in less than three days. Moreover, there appear to be no headlines to explain the strength in the underlying or high volume. Earnings are expected on February 23, which lies outside of the Feb expiration. For whatever reason, bullish sentiment is building and this name might be worth watching in the days ahead.

Liz Claiborne (LIZ) touched new 52-week highs and is trading up 34 cents to $10.31 midday Wednesday. Options volume is picking up in the name as well. Total volume is 6X the daily average after 8,760 calls and 160 puts traded in LIZ today. The top trade is a 4,600-contract block of July 13 calls on the AMEX. The block of calls was bought, according to a source on the exchange. 6,123 LIZ July 13 calls traded against zero contracts in open interest. July 11 and 14 calls on LIZ are seeing interest as well and implied volatility in the options is moving 6.5 percent to 54 ahead of a February 29 earnings release.

Bearish Flow
The largest options trade so far today is in the PowerShares QQQ (QQQ). Shares were holding a 52-cent gain to $63.73 at the time when one strategist bought 32,000 March 62 puts on the ETF and sold 64,000 March 59 puts. Both blocks traded on the CBOE, where a source tells us that the massive 1X2 put ratio spread was bought for 13.5 cents (per 1X2). If so, an investor might have initiated the spread as a short-term hedge. The max payout happens if shares fall to $59 through the expiration, which represents a 7.4 percent decline over the next four and a half weeks. There is additional risk to the downside when initiating put ratio spreads because only half of the lower strike puts, which were sold, are covered by the higher strike prices that are bought.

Puts on Earthlink (ELNK) are active ahead of earnings. Shares are off a nickel to $8.12 and options volume, which normally totals about 100 contracts through midday, is 7,060 calls and 280 puts. The action is focused on downside $8 puts, which are 1.5 percent out-of-the-money. Feb 8s are the most actives. 4,375 traded. Another 2,060 March 8 puts and 525 April 8 puts changed hands. Levels of implied volatility are moving up 44 percent to 47 ahead of the news. The company is due to release results tomorrow morning. The stock rallied 6.7 percent on 10/27 when earnings were last reported.

Unusual Volume
Abercrombie (ANF) options volume is running 3.5X the (22-day) average, with 68,000 contracts traded and call activity accounting for 59 percent of the volume.

Zynga (ZNGA) options volume is 3X the daily average, with 116,000 contracts traded and put volume representing 55 percent of the activity.

Juniper Networks (JNPR) options volume is running 2X the average daily, with 62,000 contracts traded and call volume representing 81 percent of the total volume.

Increasing options activity is also being seen in Deere (DE), Devon Energy (DVN), and Weight Watchers (WTW).

Implied Volatility Mover
CBOE Volatility Index (.VIX) is up 1.75 to 21.29 amid concerns about the European debt crisis. Greece is inching along in negotiations with creditors, but no decisive deal has been reached ahead of a March deadline to avoid a debt default. The uncertainty seems to be keeping a bid under the volatility index. Meanwhile, VIX February options expired today and the settlement is 20.44. Upside 30, 35 and 55 calls had the largest open interest positions in the index ahead of the expiration. All three contracts expired worthless. March 24, 29 and 35 calls are the most actives in the index today, as some investors are likely opening new positions in March after February call options had expired.

When Markets Disagree 02-14-2012

jcusick — Tue, 14 Feb 2012 19:06:44

Cusick's Corner 02-14-2012
The market was able to recover most of the midday pullback but bond yields finished close to the worst levels of the trading session, which is confusing since the bond yields and the equities bias have been correlated for most of this financial crisis. But that correlation is breaking apart -- today I saw the yields finish on the lows and the equities get to almost break even. Now the argument is that the Fed's actions are keeping yields down, and if the equities rally we will need to see the yields pop as well if this run to the upside in equities will have legs. I also have been noticing that commodities have not able to bounce back like the equities have -- another short term potential red flag. While I am not bearish long or medium term, I am seeing signs that real money is still ok in risk off or on the sidelines in cash, and I want to see this shift before I can think about a more aggressive upside, outside of vertical spreads.

Stock market averages pared midday losses and finished with modest gains Tuesday. Trading was cautious early after a report showed retail sales up just .4 percent in January. Economists were looking for an increase of .7 percent. The weak number added to recent worries about the pace of global economic growth, as well as future risks, stemming from the European debt situation. Greece is still trying to convince creditors that recently announced budget cuts are sufficient enough to warrant a second round of bailouts. However, finance ministers are still divided about whether the cuts are deep enough. The uncertainty persists ahead of a March deadline to avoid a messy Greek debt default. However, trading was orderly across the Eurozone again today. France's CAC 40 Index was the biggest loser and lost just .3 percent ahead of a key report on Eurozone economic growth Wednesday. Similarly, while the Dow Jones Industrial Average had lost nearly 90 points through midday, a late day round of buying interest lifted the Dow to higher ground into the closing bell. At the end of the day, the industrials had added a modest 4 points. The NASDAQ finished flat.

Bullish
IMAX shares jumped $2.46 to $24.53 on heavy turnover of 3.8 million shares after the company announced a partnership with ChinasBroadway Theatre Company. IMAX gained 4 percent on the news Monday and added another 11.2 percent Tuesday. Investors were also tuning in to IMAX options today, as volume hit 13X the daily average after 17,000 calls and 765 puts traded on the stock today. The biggest trades of the day were part of a spread, in which the investor sold 6,800 March 23 - 25 call spreads at an average of 97.5 cents. The spread likely rolls a position in March 23 calls, which are now 6.2 percent in-the-money after the stock's rally, to open a new position in out-of-the-money March 25 calls. If so, the strategist is likely closing out positions opened in mid-January, which included a buyer of 4,850 March 23 calls for 85 cents per contract on January 19. The stock is up 18.2 percent since that time and the position was apparently being liquidated today for $2.13 per contract. It appears that a new bullish position was opened in March 25s maybe in anticipation of further gains in the stock.

Bullish trading was also seen in Devon Energy (DVN), Dryships (DRYS), and Amalyin Pharmaceuticals (AMLN).

Bearish
Trading was very heavy in Zynga (ZNGA) ahead of the company's earnings report Tuesday. Shares jumped 93 cents to $14.35 on double the normal volume. 28 million ZNGA shares changed hands. The San Francisco, CA social media company released its first ever profit report as a public company after the closing bell. Players in the options market were actively jockeying for position in puts and calls on the stock ahead of the news. 119,000 puts and 89,000 calls traded in ZNGA. The top trade of the day was a February 12 - 13 (2X1) put ratio spread, bought for even money, 8500X. The strategist bought 8500 February 13 puts on the stock for 80 cents and sold 17000 February 12 puts at 40 cents. An investor might have initiated the spread to help hedge recent gains in shares. ZNGA has rallied 70 percent over the past month. The stock is down 4.2 percent to $13.75 in reaction to the news in extended trading Tuesday.

Bearish trading was also seen in LEAP Wireless (LEAP), Northern Oil and Gas (NOG), and First Solar (FSLR).

Index Trading
NASDAQ 100 Index (.NDX) touched new 52-week highs and added 5.7 points to 2575.20 Tuesday. Options on the index were a bit more active than usual. 37,000 puts and 19,000 calls traded on the index. One player bought February 2550 - 2525 put spreads on index for $4.50, 1000X. The spread might be a view that the index will see weakness over the next two days, as the cash settlement value for the index is computed Friday morning and the last day to trade Feb puts is Thursday. Another spread in NDX was an April 2400 - 2450 put spread, bought for $10.30, 1000X. Since the NASDAQ 100 is a market value weighted index of the top 100 non-financial stocks from the NASDAQ Stock Market, buying put spreads on the index is a bearish strategy on large cap NASDAQ names. Large cap tech names dominate the list. Some institutional investors were possibly active in the product today and using puts and put spreads to possibly help hedge stock portfolios.

ETF Action
SPDR Oil and Gas Exploration Production Fund (XOP) added 45 cents to $58.76 after crude oil gained 6 cents to $100.97 per barrel. XOP is an exchange-traded product that holds a basket of second tier energy names like Approach Resources, Williams Clayton, and Oasis Pete and tends to move higher and lower with the ebbs and flow of crude oil prices. Options volume in XOP today hit 4X the daily average, with 61,000 puts and 2,150 calls traded. Most of the put volume was due to one spread, in which the strategist bought 25,500 June 54 puts on the fund for $3.30 and sold 25,500 June 48 puts at $1.70. This June 48 - 54 put spread, for a $1.60 net debit, is a new position and one that offers its best payout if shares fall to $48 (-18.3%) or less through the June expiration.

Can New Longs Hold Market? 02-14-2012

jcusick — Tue, 14 Feb 2012 15:24:54

Cusick's Corner 02-14-2012
The churn continues but we are not seeing sellers actually shorting. Rather, you are seeing long-term longs cashing out and new longs, the so called underinvested crowd, buying at high levels, say 1345-1350 on the S&Ps. I think that the shorts are not in the market because the short interest (go to the CFTC for that data) is really low. In the short term this is mixed to slightly bearish because if we do get a deeper pullback, this could pressure these new longs to start to liquidate. I will be watching the bid into the close, with yields on the 10 and 30yr bonds dropping slightly, the downside might catalyze. See you After Hours.

Stock market averages slipped on disappointing economic news Tuesday. Data released before the opening bell on Wall Street showed retail sales up just .4 percent in January. Economists were looking for an increase of .7 percent. The weak number adds to concerns about the pace of global economic growth as well as future risks stemming from the European debt situation. Greece is still trying to convince creditors that recently announced budget cuts warrant a second round of bailouts. However, finance ministers are still divided about whether the cuts are deep enough. The uncertainty persists ahead of a March deadline to avoid a messy Greek debt default. However, trading was orderly across the Eurozone today. The euro lost .6 percent and is back towards 1.31 on the buck, stock benchmarks finished with only modest losses. France's CAC 40 Index was the biggest loser and lost .3 percent ahead of report on Eurozone economic growth Wednesday. Today's decline on Wall Street is orderly as well. The Dow Jones Industrial Average is down 55 point. The tech-heavy NASDAQ lost 17.5 points. CBOE Volatility Index (.VIX) added 1.35 to 20.39. Overall options volume remains a bit slow, with 4.4 million calls and 4 million puts traded through 12:45pm ET.

Bullish Flow
Dryships (DRYS) options are trading heavily Tuesday. Shares are up 42 cents to $3.76 and have staged an impressive 8-day 73.6 percent surge. Options volume in the dry bulk shipper through midday is 57,000 calls and 9,360 puts. February and March 3 and 3.5 calls are the most actives. The biggest trade is part of a spread, in which the strategist apparently sold 5,000 March 2.5 calls on the stock at $1.36 and bought 5,000 March 3.5 calls for 53 cents. The spread, for an 83-cent net credit, is probably rolling activity. That is, the strategist is selling a position in deep in-the-money calls to close after the big rally in the underlying stock. They are also buying a new position in the near-the-money March 3.5 calls for bullish exposure through the March expiration, which is in 31 days.

Goodyear Tire (GT) shares lost 71 cents to $13.26 after the company reported earnings and revenues that fell short of analyst estimates. Options volume in the tire maker is running 8X the daily average. 27,000 calls and 15,000 puts traded on the stock. March 14 calls, which are 5.7 percent out-of-the-money, are the most actives. 11,370 traded. Interestingly, some investors were also buying the February 14 calls in early trading for 15 cents per contract. 6,500 now traded and the market is a nickel to a dime. Some investors might have been expecting the stock to bounce of morning lows and were buying short-term OTM calls. February options expire at the end of this week.

Bearish Flow
First Solar (FSLR) has been under pressure in recent days and one player in the options market seems to expect the bearish trend to continue. The stock is down $2.61 to $39.11 today and has suffered a three-day 20 percent rout. In morning options action, one player bought 11,200 March 39 puts on FLSR for $4.15 and sold 11,625 March 32 puts at $1.27. The spread appears to be a new position and possibly to hedge shares heading into earnings later this month. The company is expected to report earnings around February 23.

US Natural Gas Fund (UNG) adds 18 cents to $5.36 and has now gained 7.6 percent from the all-time lows of less than $5 seen in late-January. Options volume on the exchange-traded fund today is 66,000 puts and 26,000 calls. The top trade is a 13,000-contract block of January 4 puts traded at the 44-cent asking price. Another 10000 traded, also at 44 cents per contract. Volume in the Jan 4 puts on UNG is now 38,000 contracts. Open interest is already 88,093 and the biggest position in the fund. Some players might be accumulating positions in these deep out-of-the-money puts on the view the rally in UNG will son run out of gas and shares will again trade lower through January 2013. Shares are down more than 55 percent from the highs seen in June 2011.

Unusual Volume
Weatherford (WFT) options volume is running 3X the (22-day) average, with 78,000 contracts traded and call activity accounting for 86 percent of the volume.

Zynga (ZNGA) options volume is 2.5X the daily average, with 78,000 contracts traded and call volume representing 54 percent of the activity.

Dryships (DRYS) options volume is running 3.5X the average daily, with 44,000 contracts traded and call volume representing 85 percent of the total volume.

Increasing options activity is also being seen in Goodyear Tire (GT), Devon Energy (DVN), and Humana (HUM).

Implied Volatility Mover
Yahoo (YHOO) is under pressure today on news reports that talks with Alibaba and Softbank about a possible deal have ended. There had been optimism building in recent days that the companies would reach an agreement that would have resulted in cash for Yahoo in exchange for its 40 percent stake in Alibaba. YHOO is down 78 cents to $15.34 on heavy trading of 32 million shares today after deal talks ended. 155,000 options have also traded on the Internet giant, which is 3X the norm, and implied volatility in YHOO options jumped 35 percent to 34.5.

Watch the Yields 02-13-2012

jcusick — Mon, 13 Feb 2012 18:51:09

Cusick's Corner 02-13-2012
This is a time when we want to keep an eye on Bonds, IEF/TLT, this may be a potential "tell" on the next move in the market. In other words, if the equities are going to continue to the upside that's now at July highs, then yields on the long end of the bonds, 10 yr at 1.99%, need to break to the upside. If there is a break to the upside on the yields and the correlation of yields and equities continues, then equities will have some fuel -- the cash coming out of from bonds -- and we could see a potential break out in stocks which could be a signal for new upside levels. This is one way that you can look for potential market moves without relying on the next headline. See you Midday.

Stock market averages were up along with European benchmarks early Monday, but then moved in a narrow range on light volume throughout the remainder of the trading session. The underlying tone of trading was positive early after Greece approved a round of budget cuts over the weekend. In order to receive a second bailout and avoid a March debt default, Greece is trying to convince other EU members that the deeply indebted country is implementing a round of unpopular austerity measures despite riots in Athens. European benchmarks ticked higher on hopes for a deal and were led by a .9 percent advance in UK's FTSE. On the domestic news front, President Obama sent a $3.8 billion budget to Congress. The plan is expected to add another $6.7 trillion to the debt over the next decade despite cuts to government spending and programs. The market didn't seem to react much to the news and, with no economic data on the docket until Retail Sales numbers tomorrow morning, the Dow Jones Industrial Average had forged a 70-point gain through midday. From there, trading was largely uneventful and the Dow finished the day up 73 points. The tech-heavy NASDAQ gained 27.5 points.

Bullish
Southwest Energy (SWN) sees heavy call volume Monday. Shares of the Houston, TX oil and natural gas company added just a penny to $33.60 on lighter-than-normal volume of 4.25 million. The recent daily average is 7.8 million shares. However, options volume jumped to 4.5X the daily average. 101,000 calls and 14,000 puts traded in Southwest Energy. The top trade of the day surfaced in morning action when one investor bought 11,250 March 34 calls on the stock for $2.19. The same investor sold 2,500 February 34 calls at 68 cents and sold 7,500 March 31 calls at $3.95. The same three-way spread traded multiple times today and volume in March 34 calls surged to more than 49,000 contracts. The activity appears to be rolling, or closing out positions in February 34 calls and March 31 calls to open new positions in March 34 calls. While the February 34 calls are 40 cents out-of-the-money and expiring at the end of the week, March 31 calls are $2.60 in-the-money. Monday's bullish investor is possibly exiting positions in those two contracts and opening new positions in OTM March 34s. The position adjustment comes after an 8-day 10.5 percent winning streak in SWN shares.

Bullish trading was also seen in Diana Shipping (DSX), Frontier Communications (FTR), and Cheniere Energy (LNG).

Bearish
Put volume is picking up in NetApp (NTAP) ahead of the company's February 15 earnings release. Shares of the storage device maker were down 70 cents to $38.98 on an analyst downgrade Monday and options volume was 3X the daily average. 28,000 calls and 56,000 puts traded on NetApp today. The top trade of the day was a spread, in which the investor apparently bought 7,250 February 39 puts on the stock for $2.21 and sold 7,250 February 34 puts at 36 cents. The spread, for a $1.85 net debit, might have been initiated to hedge the risk of post-earnings volatility in the stock. NTAP tends to see volatility around earnings releases. Shares fell 12.3 percent on 11/17 after earnings were last reported. Shares suffered a 14.1 percent loss on 8/18 when profits missed Street estimates.

Bearish trading was also seen in Marathon Petroleum (MPC), Diamond Foods (DMND), and Lincare Holdings (LNCR).

Index Trading
The European Style S&P 100 Index (.XEO) saw more volume than usual. The index is listed under the ticker symbol XEO, which is OEX backwards. It is identical to the S&P 100 Index (.OEX), but with one important difference. OEX is one of the few cash indexes that has American style options contracts, which means that puts and calls on the index can be exercised at any time prior to the expiration. Like most (not all) other indexes, XEO settles European style, which means that exercise and assignment of options on the index can only happen at the expiration. Both OEX and XEO added 4.42 points to 611.54 Monday. Options volume in the XEO was 2.2X the daily average, with 4,680 puts and 2,670 calls traded in the product. OEX, which was the first market average to have options linked to its performance, tends to see more daily volume than XEO. 5,800 calls and 9,885 puts traded in the OEX pit today. Many old timers still like the OEX.

ETF Action
Monday was a very light volume day across the equity and options markets. 763 million shares traded in the SPDR 500 Trust (SPY), PowerShares QQQ (QQQ) and other ETFs, which is well below the recent daily average of more than 1 billion shares. In options, 1.65 million calls and 2.5 million puts traded across all exchange-traded funds, which is also well below (about 80 percent) the recent average daily levels. Some investors might be waiting on the sidelines ahead of key data later this week including Retail Sales Tuesday, FOMC minutes Wednesday and inflation data later in the week. The market's low volatility and slow grind higher so far in 2012 might be beginning to take a toll on trading volumes as well. That is, investors tend to be more active in fast and volatile markets rather than quiet and slow markets.

Old Saying "Buy Rumor, Sell News"?

jcusick — Mon, 13 Feb 2012 15:26:33

Cusick's Corner
This is a headline minefield today -- Greece and China continue to dominate the airwaves. The S&Ps are challenging 1350 and Crude is breaking 100 with very little or no real catalyst. I do not fight a rising tide and recognize that there is still little that has changed since the grind higher started, so I will continue to monitor the reports out of the EU and would be scaling into ideas. This could be a "buy the rumor, sell the news set up" way to play this market. I would be more concerned if we cannot get some momentum into the After Hours, if we cannot get a close over resistance. See you After Hours.

Stock market averages edged higher after Greece approved a round of budget cuts over the weekend. In order to receive a bailout and avoid a March debt default, Greece is trying to convince other EU members that the deeply indebted country is implementing a round of unpopular austerity measures despite riots in Athens. European benchmarks ticked higher on hopes for a deal and were led by a .9 percent advance in UK's FTSE. The euro edged up .1 percent to 1.321 against the buck. The domestic news is light today. President Obama sent a $3.8 billion budget to Congress. The plan is expected to add another $6.7 trillion to the debt over the next decade despite cuts to government spending and programs. The market didn't seem to react much to the news and, with no economic data on the docket until Tuesday's Retail Sales numbers, the Dow Jones Industrial Average has traded in a narrow 85-point range. The Dow is up 66 points through midday. The NASDQ gained 22 points. CBOE Volatility Index (.VIX) is off 1.46 to 19.33. Overall options volume is a bit slow, with 3.8 million calls and 3.4 million puts traded through 12:15pm ET.

Bullish Flow
Yahoo (YHOO) ticks 2 cents higher to $16.16 and trading on the Internet giant remains active Monday. YHOO saw active trading last week on reports Alibaba is in talks to take its Hong Kong unit private, which would give Yahoo some cash because the company is Alibaba's largest stakeholder. There seems to be some optimism in the name today as well. 41,000 calls and 22,000 puts traded n YAHOO so far. The top trade is a 4,450-contract block of February 16 calls traded at the 25-cent asking price. 9,537 contracts traded. Separately, 4,337 March 16 calls traded for 60 cents when the market was 59 to 60 cents. 7,504 March 16 calls on Yahoo changed hands. March 17 and 18 calls are also seeing interest. July 16s are the most active puts in Yahoo today. Some investors might be taking positions in short-term upside calls on Yahoo on hopes for additional news about the company's Alibaba stake in the days/weeks ahead.

Cheniere Energy (LNG) is trading up $1.09 to $15.02 and touched new 52-week highs today after Standard and Poor's raised their rating on the company one notch. The credit rating agency said the natural gas company's recent deleveraging measures were one reason for the upgrade. LNG is rallying on the news and options on the stock are actively traded as well. 26,000 calls and 13,000 puts traded so far. February 15 calls, which are at-the-money after today's move and expiring at the end of the week, are the most actives. 7,845 traded. Another 6,090 March 15 calls also changed hands.

Bearish Flow
The top two trades so far today are in the SPDR Financial Fund (XLF). Shares, which hold all of the financial-related names from the S&P 500, are up 12 cents to $14.69. In morning options trading, a 25,000-contract block of April 13 puts traded on XLF for 20 cents per contract. At the same time, 25,000 March 14 puts traded for 23 cents. Both blocks traded on the International Securities Exchange, where data is reporting opening purchases of both contracts. If so, an institutional investor probably bought the blocks of XLF downside puts to hedge some risk of holding financial names through the March expiration (32 days) and April expiry (67 days).

Marathon Petroleum (MPC), a Findlay, OH oil and gas refiner, is trading down 35 cents to $43.73. Options volume on the stock is running 22X the daily average after 73,000 calls and 6,135 puts traded in the name. Most of the flow is due to trading around the dividend. MPC goes ex-dividend tomorrow and high volume is being seen in the February 35 and 37.5 calls, which are well in-the-money. However, the early options action in MPC doesn't appear to be related to the dividend. One of the top trades was a 2,574-lot of February 40 puts traded for $1.55 on ISE and an opening buyer. 5,590 traded on the day, as some players appear to be opening positions in these out-of-the-money puts on concerns about a possible decline in shares from now through mid-April. MPC has been moving lower over the past few days, but had performed well during the past month. The stock is up more than 40 percent since January 9.

Unusual Volume
Southwest Energy (SWN) options volume is running 4X the (22-day) average, with 108,000 contracts traded and call activity accounting for 91 percent of the volume.

Salesforce.com (CRM) options volume is 2.5X the daily average, with 48,000 contracts traded and call volume representing 85 percent of the activity.

Diamond Foods (DMND) options volume is running 2X the average daily, with 38,000 contracts traded and put volume representing 63 percent of the total volume.

Increasing options activity is also being seen in STEC, Avon Products (AVP), and Market Vectors Russia Fund (RSX).

Implied Volatility Mover
Implied volatility in Vivus Pharmaceuticals (VVUS) options is elevated. Shares are down 14 cents to $12.21 and June 5 puts are the most actives in the stock. 2,668 contracts traded. Some investors might be buying deep out of the money puts on VVUS ahead of an FDA review of the company's Qnexa drug on February 22. Implied volatility is moving sharply higher ahead of the news. IV levels in VVUS are up 20 percent and moving to new highs of 214 today.

Opa! Will Market Break a Plate and Move On? 02-10-2012

jcusick — Fri, 10 Feb 2012 19:06:00

Cusick's Corner 02-10-2012
The late day bid popped in and got the market to finish off the lows. I saw the Green Bay Packers win 13 in a row, drop one and go 15 and 1, and I won't even bring up the post season... The reason I bring this up is that the market this year has had a similar streak and next week will be the first test of this bullish resolve. I see this as a healthy pullback, barring a major headline from the EU, we could see some decent momentum for the bulls. Next week is February options expiration -- if you have any expiring options, put a plan together over the weekend to deal with those positions. Have a great weekend.

Stock market averages fell along with European benchmarks on concerns about the debt crisis Friday. Anxiety levels rose in Europe after finance ministers delayed final approval for a Greek bailout. Officials want Greece to adopt stricter austerity measures, but the country is also facing a backlash from the angry protesters who are opposed to additional budget cuts. A political battle brews, just as Greece is facing a March deadline to avoid a messy debt default. Disappointing economic data from China and in Europe added to the bearish sentiment on Wall Street. The domestic economic news included the University of Michigan Sentiment Index slumping to 72.5 in February, from 75.0 in late-Jan and below expectations of 74.0. Separate data showed a wider than expected Trade Balance for December. The data didn't help and today's weakness seems predominantly related to the ongoing problems in Europe. The Dow Jones Industrial Average was down sharply into midday, but pared some of the losses into the close. At the final bell, the Dow was down 89 points and 57 points off its worse levels. The tech-heavy NASDAQ gave up 23.4 points.

Bullish
Riverbed Technology (RVBD), a San Francisco, CA software and networking company, saw an inexplicable rise of call option activity Friday. Shares didn't do much - falling 6 cents to $27.67 on volume of 3.7 million, which is only about 70 percent there recent average daily share volume for the name. However, options volume was heavy. 22,000 calls and 3,150 puts traded in RVBD today. Most of the action was in smaller lots. The top trade was 590 February 30 calls for 15 cents per contract. 3,750 traded. The contract is 8.4 percent OTM and expires at the end of next week. March 30, 31, 32, and 33 calls were busy as well and levels of implied volatility in RVBD were up 15 percent to 47. There was no news on the ticker today, but the name might be worth watching in the weeks ahead, as some players in the options market seemed to be buying calls in anticipation of a larger-than-typical short-term move in Riverbed Technology shares.

Bullish trading was also seen in Frontier Communications (FTR), Yahoo (YHOO), and Darden Restaurants (DRI).

Bearish
Ctrip (CTRP), the Chinese online travel company, saw relative strength today. Shares gained 21 cents to $24.93. Meanwhile, options volume was 5.5X the daily average. 18,000 puts and 610 calls traded on the stock today. The top trade was part of a spread, in which the investor apparently bought 5,000 March 24 puts for $1.50 and sold 5,000 March 20 puts at 25 cents. The same spread traded again for $1.25, 2000X. In fact, both contracts traded more than 8,000 on the day and the activity appears to be opening, or new positions in CTRP. If so, the bearish Mar 24 - 20 put spreads might have been initiated to help hedge stock. The max profit of the position happens if shares fall to $20 or less through the March expiration, which represents a 20 percent tumble over the next five weeks.

Bearish trading was also seen in Kroger (KR), Ventas (VTR), and Teradyne (TER).

Index Trading
Trading volumes picked up in the index market, as the S&P 500 Index (.SPX) lost .7 percent and suffered its biggest decline so far in 2012. 838,000 calls and 890,000 puts traded across the S&P 500, S&P 100 Index (.OEX) and other cash indexes, which is about 1.5X the recent daily average, according to Trade alert data. Meanwhile, CBOE Volatility Index (.VIX), which tracks the expected volatility priced into S&P 500 Index options, jumped 2.16 to 20.79 and gained 21.4 percent on the week. The volatility index is moving higher due partly to the concerns over the lack of agreement between Greece and its creditors. Frances CAC 40 Index paced the decline across Europe with a loss of 1.5 percent today. Yet, the decline on Wall Street was orderly. The S&P continues to trade quietly and has not suffered a daily loss in excess of 1 percent so far in 2012. Now, however, with VIX moving back beyond 20 and well above the actual volatility of the S&P (30 day is only 8.4 percent), the options market might be beginning to "price in" or discount the prospect of wider daily price swings in the S&P 500 in the weeks ahead.

ETF Action
Friday was a rough day for the metals and mining names. Stocks were falling across the sector after weak Chinese import data and falling metals prices weighed on the group. Gold lost $18 to $1723 and silver gave up 42 cents to $33.50. Meanwhile, SPDR Metals and Mining Fund (XME), which represents ownership in a basket of different names from related industries, lost $1.99 to $53.25. Options volume in the product rose to 3.5X the daily average. 33,000 puts and 14,000 calls traded in XME Friday. March 51 puts, which are 4.2 percent out-of-the-money and expiring in 5 weeks, were the most actives. 13,500 traded. Feb 53 and Jun 51 puts were busy as well. Some portfolio managers might have been taking positions in downside puts in XME to hedge recent gains in metals and mining names. XME was down today, but is up 9.7 percent year-to-date.

Greece Lightning 02-10-2012

jcusick — Fri, 10 Feb 2012 15:24:59

Cusick's Corner 02-10-2012
I was not surprised that there were some profits cut and that bonds ticked higher throughout the morning, but apparently fear is not a major factor, VIX 20.40. I look at this as an orderly pullback, holding critical support, 1332 on the S&Ps. I will be watching the After Hours trade for the bid to come in and tighten up on the early morning shorts. Crude on the other hand is taking on some pressure, so I will be keeping an eye on that market. See you After Hours.

Stock market averages fell along with European benchmarks on concerns about the debt crisis. Anxiety levels rose after final approval for a Greek bailout was delayed by finance ministers. Officials want Greece to adopt stricter austerity measures, but the country is also facing a backlash from the angry protesters who are opposed to additional budget cuts. A political battle is heating up, just as Greece is facing a March deadline to avoid a messy debt default. Disappointing economic data from China and in Europe added to the bearish sentiment on Wall Street. The domestic economic news was also uninspiring after a report showed the University of Michigan Sentiment Index slumping to 72.5 in February, from 75.0 in late-Jan and below expectations of 74.0. Separate data showed a wider than expected Trade Balance for December. In the end, there isn't much positive news to lift market averages through midday. The Dow Jones Industrial Average is down 111 points. The NASDAQ lost 18.6 points. CBOE Volatility Index (.VIX) jumped 1.77 points to 20.40. Overall options volume is active and becoming more defensive, with 5 million calls and 5.5 million puts traded through 12:30pm ET.

Bullish Flow
Yahoo (YHOO) is seeing relative strength and high options volume today after Reuters reported that Alibaba's founder is possibly considering a complex deal, which would involve taking Alibaba's Hong Kong unit private. The move would give Yahoo, a key Alibaba stakeholder, cash and also an interest in one of the company's operating businesses, according to the report. Yahoo shares are moving up 1.3 percent to $16.25 on the news. Share volume is approaching 17 million. Meanwhile, 91,000 calls and 66,000 puts traded on the Internet giant. While July 16 puts are the most actives, July 16 and 18 calls are seeing heavy trading as well. Some players might be eyeing the July contract in anticipation of a formal announcement from Alibaba executives between now and mid-July.

CBOE Holdings (CBOE), owner of the Chicago Board Options Exchange, is trading up $1.53 to $28 on news the company will be added to the S&P 400 MidCap Index. The so-called "index effect" has helped lift the stock on heavy volume. 2.8 million shares have traded in Yahoo so far today. By way of comparison, typical volume through midday is about 300,000. Meanwhile, options volume is running 6X the daily average. 12,000 calls and 3,670 puts traded in the name. At-the-money February and September 28 calls are the most actives.

Bearish Flow
MSCI EAFE Fund (EFA) is down 95 cents to $53.35 after European equity markets slumped on concerns about Greece. EFA is the exchange-traded fund that tracks the MSCI Europe, Far East, and Australia index. An interesting options trade on the fund today is a February 49 - March 50 put spread, for 62 cents, 7400X. In this diagonal spread, the strategist apparently bought 7,400 March 50 puts on EFA, which are 6.3 percent out-of-the-money and expiring in 5 weeks, for 69 cents per contract and sold 7,400 February 49 puts at 7 cents. February options expire at the end of next week and the spread trader probably expects shares to hold above $49 (8.1%) during that time and for the February contract to expire worthless. If so, they are then holding the March 50 puts (for a 62-cent net debit plus transaction costs) and positioned for a move lower through the March expiration.

Kroger (KR) has added 12 cents to $23.70, but shares of the grocery chain have not performed very well lately. KR is down about 4 percent since January 25. In options action, March 23 puts on the stock are busy today. The flow includes a buyer of 4,050 contracts at 55 cents per contract. 5,447 have now traded against 372 in open interest. There's no news on Kroger today. Some investors might be buying puts to hedge stock after the recent underperformance and heading into earnings, which are expected around March 1st.

Unusual Volume
LinkedIn (LNKD) options volume is running 6X the (22-day) average, with 83,000 contracts traded and call activity accounting for 52 percent of the volume.

Nuance (NUAN) options volume is 2.5X the daily average, with 27,000 contracts traded and call volume representing 57 percent of the activity.

Pitney Bowes (PBI) options volume is running 3.5X the average daily, with 24,000 contracts traded and put volume representing 80 percent of the total volume.

Increasing options activity is also being seen in Frontier (FTR), Avon Products (AVP), and Ctrip (CTRP).

Implied Volatility Mover
CBOE Volatility Index (.VIX) jumped 1.77 points to 20.40 and is on track to gain 19.3 percent on the week. Today's move in the index, which tracks the expected volatility in the S&P 500 index, comes as global markets trade lower ahead of the weekend on concerns about the lack of agreement between Greece and its creditors. Frances CAC 40 Index paced the decline across Europe with a loss of 1.5 percent. In the US, trading is orderly and the S&P 500 Index is down just .7 percent. The S&P continues to trade quietly and has not suffered a daily loss in excess of 1 percent so far in 2012. Now, however, with VIX moving back beyond 20, the options market might be beginning to "price in" or discount the prospect of wider daily price swings in the S&P 500 in the weeks ahead.

Bull Call Spread Discussed 02-09-2012

jcusick — Thu, 09 Feb 2012 19:14:38

Cusick's Corner
I was talking about bull call spreads in the Midday and one reader asked to give at an example. Let's say you decide to enter a bull call spread on XYZ stock trading near $26.00 by purchasing a call option two strikes below the current stock price and then selling a call with a higher strike. Example: if you buy May 22.50 strike calls for $4.20 then this call option gives you the right to buy the stock for $22.50 per share. For the other leg of the spread if you sell May 25 strike calls at $2.00 then this is an obligation to sell the stock for $25 per share in the event the stock rises to, or above, $25 per share. If you take the total cost of the entire spread = $4.20 paid for the 22.5 calls ($420 per contract) and subtract the credit received = $2 for the 25 calls ($200 per contract) then the Maximum Loss Potential = $2.20 per share ($220 per spread contract in real terms). Your maximum profit for this transaction is $0.30 ($30 per spread in real terms) if you hold it until expiration and the stock closes above the $25 strike price. For yield hounds, that's about 13.6%, and we typically look to do this week or less to expiration. See you Midday.

Stock averages finished with modest gains on another day of low volatility Thursday. The underlying tone was positive early in the day after Greek Prime Minister Lucas Papademos said that negotiations between his country and international creditors had "concluded successfully". European benchmarks finished with modest gains and the euro added .2 percent, now testing 1.33, against the dollar. However, the early gains were held in check, as a Greek austerity deal must also receive approval from finance ministers. The domestic economic news was light and included jobless claims, which showed a decline of 12,000 to 358,000 last week. Economists were looking for claims to hold steady at 370,000. A separate report released later was Wholesale Inventories up 1 percent in December. The market showed little reaction to the data and low volatility, with mixed trading, continued for another day. At the final bell, the Dow Jones Industrial Average was up just six points. The NASDAQ added 11.4 points.

Bullish
Quite a day for Apple Computer (AAPL) -- shares rallied 3.5 percent to $493.26 on volume of 31.4 million. By way of comparison, average daily share activity in Apple during the past month is 12 million. Meanwhile, options volume totaled almost 1.4 million contracts, as 860,000 calls and 514,000 puts traded on the stock - which is a new record day for Apple options, according to Trade Alert data. The stock was up and volume heavy today on media reports the company might unveil the new iPad3 at a press event next month. Shares have already performed well in 2012 and, after a 21.8 percent year-to-date gain, are notching new record highs. Some players might be anticipating additional gains before the weekend, as upside 495 and 500 Weekly (2/10) calls, which expire after tomorrow, were the day's most actives in Apple Computer.
Bullish trading was also seen in TripAdvisor (TRIP), Yingli Green Energy (YGE), and Bunge (BG).

Bearish
McGraw Hills (MHP) shares slipped 22 cents to $45.73 and have been underperforming so far in February. Shares of the New York based publisher, which owns Standard & Poor's, are off 1.5 percent since earnings were reported on January 31. Some players in the options market seem to be bracing for additional weakness in the stock in the days ahead, as February puts in MHP were seeing interest today. Feb 45s, which are 73 cents out-of-the-money and expiring at the end of next week, were the most actives. 5,000 traded. Another 3,050 Feb 46 puts changed hands and levels of implied volatility in the options on the stock were up 18.5 percent to 24.5. It's not clear what was driving the bearish action, as there was no news on the stock today. For whatever reason, some investors seemed to be taking new positions in downside puts and preparing for potential volatility in the stock over the next six trading days. February options expire a week from tomorrow.
Bearish trading was also seen in Diamond Foods (DMDN), Staples (SPLS), and HSBC (HBC).

Index Trading
Trading volumes remain light in the index market, partly due to the low levels of market volatility seen so far in 2012. The S&P 500 Index (.SPX) saw another day of narrow trading. The index traded in a 10-point range and added 1.99 points to 1,351.95. Meanwhile, CBOE Volatility Index (.VIX), which tracks the expected volatility priced into S&P 500 Index options, edged up .47 to 18.63. Options volume across the S&P 500 Index, VIX and other cash indexes today was about 540,000 calls and 651,000 puts. An index that did see increasing volume was the NASDAQ 100 Index (.NDX). This index tracks the price action of the top 100 NASDAQ non-financial names and added 18.20 to 2563.90, which is a new 52-week high for the index. Options volume in the product was 2.5X the daily average. 45,000 calls and 49,000 puts traded on the index, as players in the options market were probably taking positions in NDX puts and calls in anticipation of the next big move in the NASDAQ.

ETF Action
US Natural Gas Fund (UNG), which tracks the commodity through futures contracts, added a nickel to $5.24 after natural gas prices gained 3 cents to $2.48 on the heels of weekly inventory data. Options volume on the ETF was 72,000 calls and 34,000 puts. January 4 puts were the most actives. The top trade was a 10,000-contract block for 42 cents when the market was 41 to 42 cents. At the end of the day, 35,774 traded against 14,143 in open interest. Some investors might be long natural gas and are buying puts on UNG to hedge their views through the rest of the year. UNG hit record lows when it briefly dipped below $5 per share on January 20.