Cusick's Corner 04-30-2012

The challenge is on for the bulls -- will they break or continue to chop? I will be watching the action in the Euro, FXE, as a potential flag early this week. If the Euro currency does break to the downside, this could be a potential flag for pressure on Equities. As noted below, the data was poor but after the advance GDP number, not totally out of left field. This puts the onus on the employment data at the end of the week -- if it's poor then the market could come under pressure. Also as I noted last week, the crowd, retail traders, appear to be getting more pessimistic at this stage and as a contrarian I will be looking for some contra plays, most likely in the commodity sector for the rest of today. See you After Hours.
Trading is sluggish and volumes are light on a slow news day. On the economic front, a report released before the opening bell showed Personal Incomes up .4 percent and Spending increasing by .3 percent in March. Economists were expecting increases of .2 percent and .5 percent, respectively. Separately, Chicago PMI, a gauge of regional manufacturing activity, fell to 56.2 in April, from 62.2 in March and well below economist estimates of 60.0. The poor data seemed to keep any rally attempts in check through midday and losses across the Eurozone also weighed on market action. France's CAC 40 is helping to pace the slide with a loss of 1.6 percent. Action in the commodities market is equally lackluster. Crude oil lost 63 cents to $104.30 per barrel and gold slipped $5 to $16609 an ounce. The Dow Jones Industrial Average has traded in a narrow 42-point range and is down 30 points. The NASDAQ lost 15. CBOE Volatility Index (.VIX) jumped a point to 17.32. Overall options volume is light, with approximately 2.7 million calls and 2.3 million puts traded across all the exchanges through 11:35am ET.
Bullish Flow

Monster Beverage (MNST) is seeing a monster rally on increasing volume of 3.5 million shares after Dow Jones Newswires reported Coca Cola is possibly interested in acquiring the company. The stock was halted and then surged. MNST is now up $11.30 to $76.83 and rallying to all-time highs on the news today. Meanwhile, options action on the energy-drink maker is picking up as well. 2,030 calls and 1,500 puts traded in the name so far, which is 3X the daily average. June 80 calls are the most actives, with some investor possibly taking positions on hopes that MNST (Coke which hasn't yet commented on the speculation and will make an official announcement) might move to more than $80 per share by mid-June.
Suncor Energy (SU), a Canadian integrated oil and gas company, is seeing increasing volume ahead of earnings. SU is due to report this afternoon. 18,000 calls and 2,910 puts traded on the stock ahead of the news. Much of the call volume is due to one spread trade, in which 5,000 May 32 calls were apparently bought on SU for 68 cents and 10,000 May 35 calls sold at 17 cents. The 1X2 call ratio spread, for a 34-cent net debit, looks like a new position that offers its best payout if the stock settles at $35 at the May expiration, or a gain of about 7 percent over the next 18 days. The strategist might be anticipating the stock to rally on the earnings news and then to hold in the mid-30s in the weeks ahead.
Bearish Flow

Suntech Power Holdings (STP) is down 72.8 percent during the past twelve months and some investors seem concerned that the slide will continue through the remainder of 2012. Shares are down 11 cents to $2.58 and options volume is 2X the daily average, with 4,250 puts and only 30 calls traded on the solar energy company through midday. The flow is concentrated in January 2.5 puts and includes a 2,500-lot traded for 89 cents when the market was 77 to 89 cents. 3,300 Jan 2.5 puts now traded on STP. Open interest is already 26,978 and the largest position in the name. While today's apparent put buying might be closing existing short positions in the Jan 2.5s, levels of implied volatility in the options on the stock moved up 7 percent to 81, which suggests that premiums are becoming richer and players in the options market are bracing for increasing volatility in the underlying stock.
SPDR Basic Materials Fund (XLB) sees high put volume on a day or relatively light activity throughout the options market Monday. XLB, which holds all of the chemical, metal and other "materials" names from the S&P 500, is down 32 cents to $36.61 and set to finish the month of April with a loss of about 1 percent. In options action, 94,000 puts and 465 calls traded on the ETF today. The flow isn't really bearish, however as most of the volume is due to one spread trade after an investor sold 44,000 May 34 puts on the ETF at 12 cents and bought 44,000 May 32 puts for 7 cents. This spread which traded for a 7-cent credit, appears to close out a position opened in late-April, when the same position was being initiated for 24 cents. The investor might have anticipated a rocky month of April for the sector, but has possibly suffered a loss on the downside (out-of-the-money) put spread due to the fact that the move lower in XLB has not been sufficient enough to offset the negative impact of time decay.
Unusual Volume

SPDR Basic Materials Fund (XLB) options volume is running 3.5X the (22-day) average, with 94,000 contracts traded and put volume accounting for 100 percent of the volume.
Marvel Technology (MRVL) options volume is 6X the average daily, with 42,000 contracts traded and call volume representing for 60 percent of the activity.
Sunoco (SUN) options volume is running 12X the average daily, with 34,000 contracts traded and call volume accounting for 85 percent of the activity.
Increasing options activity is also being seen in Merck (MRK), Allscripts (MDRX), and Barnes and Noble (BKS).
Implied Volatility Mover

Implied volatility in the options on Allscripts (MDRX) is easing off of the high levels seen Friday. Shares took a hit late last week after the company lowered guidance, announced that some Board members are stepping down, and a CFO resigned. Active trading continues Monday. MDRX has rebounded and is up 63 cents to $10.93 on volume of 13 million shares. Options volume is 6.6X the daily average. 20,000 calls and 1,720 puts traded so far. September 12 calls are the most actives. 10,160 changed hands. Some investors might be selling the upside (out-of-the-money) calls, as 57 percent of the volume traded on the bid and levels of implied volatility in MDRX options is down 5 percent to 57 on the day.
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