Cusick's Corner 04-11-2012

The bounce on the open in the S&Ps happened as many expected, but what I do not like is that there was not a lot of momentum beyond the 1370 level, which is that midterm support on the S&P 500 cash now acting as resistance. With Crude picking up on bigger draw on gas, the demand picture looks solid and this could potentially bode well for equities. See you After Hours.
Stock market averages are holding gains on positive earnings news and following a rebound in Europe's equity markets Wednesday. Alcoa (AA) is up 7.7 percent and leading the Dow Jones Industrial Average higher after the aluminum-maker posted better-than-expected earnings after the closing bell Tuesday. The economic calendar is light and the Fed's Beige Book, which offers a qualitative assessment of the economy, is due out at 2:00pm ET. Meanwhile, Europe's equity markets bounced back from the steep losses suffered yesterday after an ECB Board Member said the central bank still has a loan repurchase program in place if the need arises. Germany's DAX is helping to pace the advance with a gain of 1 percent. Crude oil rose $1.64 to $102.66 per barrel and gold slipped $1 to $1660 an ounce. The Dow Jones Industrial Average is up 109 points and 20 points from its best levels. CBOE Volatility Index (.VIX) slid .77 to 19.62. Overall options volume is slower than yesterday, with 4.2 million calls and 4.1 million puts traded across all the exchanges through 12:30pm ET.
Bullish Flow

Zions Bancorp (ZION) saw a flurry of options activity Wednesday morning. Shares of the Salt Lake City, UT regional bank are up 69 cents to $20.97 and attempting to rebound from a 9 percent loss suffered since March 19. Meanwhile, options volume is running 3X the daily average for the name, with 11,000 calls and 1,500 puts traded so far. The flow is heavily concentrated in Apr 20 calls, which are almost $1 in-the-money and expiring at the end of next week. 8,604 traded against 2,161 in open interest. The activity has been in smaller sizes. The top trade is 208 contracts for 80 cents when the market was 78 to 80 cents. Average price for the Apr 20 call on ZION so far today is 89 cents per contract and the market is now $1.14 to $1.18. It appears to be short-term speculative call buying in the name, but there are no headlines on the stock so far and the company will report earnings on April 23, which is after the expiration.
One of the largest trades in morning options action Wednesday was in the SPDR Financial Fund (XLF) after one investor sold 31,000 April 15 puts on the ETF at 16 cents per contract. XLF was the best performing of the nine Select Sector Funds in the first quarter after gaining 21.5 percent. The second quarter is off to a rough start after XLF fell 5.2 percent before rebounding 26 cents to $15.23 today. The large put sale might reflect diminishing concerns about XLF falling back below $15 through the April expiration, which would represent a 1.5 percent decline over the next 9 days.
Bearish Flow

JP Morgan (JPM) is up 98 cents to $43.94 and among 28 Dow stocks holding gains through midday Wednesday. An interesting options trade on the bank is a September 30 - 35 put spread for 54 cents, 13000X on PHLX. In this spread, the investor bought 13,000 September 35 puts on the stock for 98 cents and sold 13,000 September 30 puts at 44 cents. The spread is possibly designed to hedge stock, as it would offer its best payoff if JPM drops to $30 by mid-September, which represents a decline of 31.7 percent. Shares are up 32.1 percent year-to-date heading into an earnings report on Friday.
A bearish spread was initiated in FedEx (FDX) today as well. Shares are up $1.45 to $88.08 and trying to recover some of the 8.5 percent loss suffered during the past three weeks. One player in the options market doesn't seem to think the gains can hold, as an October 60 - 70 put spread was bought on the stock for $1.14, 3700X on NYSE-ARCA. In this trade, 3,700 October 70 puts were bought and 3,700 October 60 puts sold, which sets up a bearish play with a max payout if FDX sinks to $60 through the expiration, which represents a 31.8 percent nosedive from current levels.
Unusual Volume

Nokia (NOK) options volume is running 4.5X the (22-day) average, with 119,000 contracts traded and call volume accounting for 51 percent of the volume.
Alcoa (AA) options volume is 2X the average daily, with 91,000 contracts traded and call volume representing for 71 percent of the activity.
F5 Networks (FFIV) options volume is running 4.5X the average daily, with 35,000 contracts traded and put volume accounting for 71 percent of the activity.
Increasing options activity is also being seen in Jaguar Mining (JAG), NetApp (NTAP), and VMWare (VMW).
Implied Volatility Mover

Implied volatility in the options on Alcoa (AA) fell sharply Wednesday morning. AA unofficially kicked off the earnings reporting season Tuesday afternoon and the stock is leading the Dow Jones Industrial Average higher with a 7.7 percent surge on heavy volume of 58 million shares. Alcoa options are actively traded as well. 66,000 calls and 28,000 puts traded on the stock so far. AA is at $10.05 and near-the-money April 10 calls are the most actives. Meanwhile, levels of implied volatility have plummeted 26.5 percent to 33 and not far from this year's low of 30 from March 2.
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