Cusick's Corner 02-29-2012

Apple (AAPL) is at all time highs and the market continues to chop around. Big Ben did speak and while QE3 is in the proverbial backseat, it's not in the rearview mirror. I think that the ECB has their spigot on high enough while the Fed spigot is really not a big deal and he did hedge by indicating that the printing press is still operational. This still might be enough to scare the weak longs, the ones who picked up equities when the S&Ps were at 1300-1325-1340-1350, getting them more nervous and then potentially triggering a spat of selling/profit taking. I would treat any pullback at this stage as a welcomed opportunity which it has been for the last few months. See you After Hours.

Stock market averages are little changed despite volatility across other markets Wednesday. Gold traded higher early, but then came under fire and fell more than $50 from session highs. Silver, which was a hot commodity yesterday, erased early gains and is trading down $1.83 to $35.31. The Treasuries Futures market was hit by massive trades, which some thought were sent in error due to the sheer size, and bonds are under pressure today. The high volume in Treasury note futures was apparently being driven by a liquidating trade. According to unconfirmed market chatter, an investor had accumulated a sizable position in long June futures ahead of Fed Chairman Bernanke's testimony to Congress on hopes he would signal another round of Quantitative Easing, or QE3. However, when Bernanke failed to deliver, the massive position was unloaded and the sale triggered a substantial spike in volatility in the Treasury bond pints. Meanwhile, the euro gave back .7 percent to 1.336 against the buck, as the results from ECB's refinancing operations were largely in-line with expectations. However, the volatility in other markets didn't ripple through the equity market and stocks are steady on Wall Street with help from better-than-expected economic data. GDP was up an annual rate of 3 percent in the fourth quarter, which was improved from an initial reading of 2.8 percent and .2 percent better-than-expected. Chicago PMI, a gauge of regional manufacturing activity, rose to 64 in February, from 60.2 last month and much better than the 60.0 that had been expected. End-of-month position squaring is a factor Wednesday as well. The Dow Jones Industrial Average is down 10 points through midday and the NASDAQ gave up about 3 points. CBOE Volatility Index (.VIX) hit a morning high of 18.75, but is down .08 to 17.88. Options volume is running at its best levels so far this week, with 4.8 million calls and 4.2 million puts traded through 12:25pm ET.
Bullish Flow

Equinix (EQIX), a Redwood City, CA telecommunications company, is trading up $2.10 to $141.15 and seeing relative strength today after a Wall Street analyst initiated the stock with a Buy rating. Options on the stock are very heavily traded today. 22,000 calls and 790 puts so far. June 160 calls, which are 13.4 percent out-of-the-money, are the most actives. 14,230 contracts traded against just 82 contracts in open interest. One player bought 10,000 contracts for $3.30 per contract, according to a source on the exchange floor. March 140 calls on EQIX are actively traded as well and levels of implied volatility in the stock are moving up 28 percent to 38, as call buyers seem to be dominating the action in EQIX on the analyst commentary Wednesday.
Pan American Silver (PAAS) is down 56 cents to $25.58 on a volatile day for the metals market. Silver sank $1.85 to $35.29. Meanwhile, PAAS options volume is running 2.5X the daily average. 17,000 calls and 2,700 puts traded on the Vancouver-based company. July 30 calls are the most actives. 6,180 contracts traded so far. Some investors might view today's decline as an opportunity to enter a bullish trade on the stock. However, rather than buying shares outright today, they are locking in the right to buy the stock for $30 per share through the July expiration. The PAAS July 30 call has traded at an average price of $1.50 per contract today.
Bearish Flow

Microsoft (MSFT) is in the spotlight. The software giant unveiled the new Windows 8 operating system today. The stock hit a new 52-week high early, but then drifted lower and is down 11 cents to $31.76. Meanwhile, the top options trade on the stock today is a spread, in which the investor apparently bought 7,000 January 32.5 puts for $3.45 and sold 7,000 January 27 puts at $1.35. The spread, for a $2.10 net debit, is a bearish play with a max payout if shares fall to $27 or less through mid-January 2013, which represents a 15 percent decline from current levels. An investor might have initiated the spread to help hedge or protect recent gains in the stock. MSFT has been strong in early 2012 and is up 22 percent year-to-date.
Central European Distribution (CEDC) is under pressure and puts on the stock are actively traded today after the company posted disappointing earnings results. Shares are reeling, down $1.11 to $4.31, on volume of 4.3 million, which is 4X more than the typical volume through midday. Meanwhile, 9,940 puts and 3,275 calls traded on the stock. Some players are possibly liquidation positions on the news, as the in-the-money March and June $5 puts are the most actives in CEDC today and levels of implied volatility are down 33 percent to 82.5.
Unusual Volume

iShares Silver Fund (SLV) options volume is running 3X the (22-day) average, with 402,000 contracts traded and call activity accounting for 67 percent of the volume.
Silver Wheaton (SLW) options volume is 2X the daily average, with 48,000 contracts traded and call volume representing 55 percent of the activity.
Ivanhoe Mines (IVN) options volume is running 6.5X the average daily, with 28,000 contracts traded and call volume representing 98 percent of the total volume.
Increasing options activity is also being seen in Alcatel Lucent (ALU), Western Digital (WDC), and Gap Stores (GPS).
Implied Volatility Mover

Implied volatility in Sara Lee (SLE) options is moving higher amid increasing levels of call activity. The stock is seeing relative strength Wednesday. Shares are up 23 cents to $20.39 and options volume includes 4,150 calls and 70 puts. Upside April 21 calls are the most actives. More than 3,000 traded. March 21 calls are seeing interest as well and implied volatility in the options on the stock is moving up 18 percent to 24, as some players in the options market appear to be buying upside call options in anticipation of a move higher in the stock in the weeks ahead.
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