Cusick's Corner 05-09-2012

I will be continuing to monitor the Euro Currency, FXE, as a flag of any continuation to the downside. As we head into the Midday, it has broken the lower tail of the recent downside action which at this stage is not great for the prognosis of a sustained upside move. This downward move in the Euro also comes after the Equities have popped of their worst levels, S&Ps unchanged, but the US Dollar continues to surge, UUP +.32%, which pressures not just Equities but the Commodities, JJG & USO -1%. I mentioned the Retail sector on Monday -- watch earnings for PCLN, there is an expected move into the number $55 and it will be interesting to see what happens after a very active week in the stock. See you After Hours.
Global equity markets remain under pressure Wednesday, but the Dow Jones Industrial Average is well off session lows through mid-morning. Steep losses across the Eurozone amid worries about Greece set the table for the morning slide on Wall Street. Spain's IBEX is off 3.2 percent and Italy's MIB Index lost 2.1 percent. There are concerns that recent elections in Greece will undermine efforts to solve the country's ongoing fiscal crisis. Investors are worried about the European banking system and further economic weakening in the region, which is an important trading partner to the US. Yet, while The Dow Jones Industrial Average suffered another triple-digit loss in morning trading, like yesterday, the losses have since been pared. The Dow Jones Industrial Average is now down 73 points and 110 points from session lows. The NASDAQ lost 13 points. Crude oil slid 90 cents to $96.11 per barrel and gold tumbled $16.5 to $1,588 an ounce. CBOE Volatility Index (.VIX) is up .85 to 19.90, but well off session highs of 21.79. Trading in the options market is very active and reflects the cautious underlying tone, with approximately 3.6 million calls and 4.3 million puts traded across all the exchanges through 11:20am ET.
Bullish Flow

Barrick Gold (ABX) fell to 52-week lows of $35.61 early today, but then saw an impressive morning turnaround and is now up $1.28 to $38 on heavy volume of 7 million shares. The gains in the miner come despite another day of losses for gold. The yellow metal was recently down $13 to $1591.50 an ounce. Still, ABX is rallying in active trading and options action is picking up as well. 40,000 calls and 11,000 puts traded on the stock. The top trade is a July 40 - 44 call spread, traded for 79 cents, 2500X. In this spread, the investor apparently bought 2,500 July 40 calls on the stock for $1.23 and sold 2,500 July 44 calls at 44 cents. The position sets up a bullish spread with a maximum payout if the stock rallies to $44 (+15.8%) or more through the July expiration.
Homebuilder Toll Brothers (TOL) has added 8 cents to $26.16 and options volume on the stock is running 2.5X the daily average. 7,440 calls and 290 puts have traded in the name so far. May 25 calls, which are $1.16 in-the-money, are the most actives. 5,470 contracts changed hands. May 26 calls are seeing interest as well. Increased options action in TOL comes as the company is presenting today at a Wells Fargo Industrial and Construction Conference.
Bearish Flow

Eight of the ten most active options contacts in the first ninety minutes of trading Wednesday are put options on the SPDR 500 Trust. Trading under the ticker SPY, the so-called "SPYders" is an exchange-traded fund that holds the S&P 500 names. Investors can buy and sell shares throughout the trading day like shares of stock. Options on the ETF are very heavily traded as well. SPY shares are down 69 cents to $135.85 and June 130 puts are the day's most actives in the ETF. Volume is approaching 100,000 contracts. Since SPY is a proxy for the stock market, some investors are probably buying downside puts on the fund to help protect or hedge stock portfolios from the risk of further market losses. June 134, May 130, and May 135 puts on SPY are among the day's most actives as well.
A large block of puts trades on the US Oil Fund (USO) ahead of weekly inventory data. USO is an ETF that tracks the commodity through futures contracts. Shares are down 31 cents to $36.56 and have now suffered a six-day 9 percent losing skid. In morning options action, one investor bought a 21,000-contract block of June 36 puts on USO for $1.18 per contract. The hefty premium purchase seems to reflect concerns about the risk of additional losses for crude oil in the weeks ahead. However, USO has strengthened a bit in late-morning trading on the heels of weekly inventory data. The market on the June 36 put is $1.03 to $1.04. So the timing of the hefty put purchase was not so good so far.
Unusual Volume

Yahoo (YHOO) options volume is running 2X the (22-day) average, with 111,000 contracts traded and call volume accounting for 80 percent of the volume.
Disney (DIS) options volume is 3X the average daily, with 58,000 contracts traded and call volume representing for 62 percent of the activity.
Watson Pharmaceuticals (WPI) options volume is running 2.5X the average daily, with 32,000 contracts traded and call volume accounting for 85 percent of the activity.
Increasing options activity is also being seen in SodaStream (SODA), NetApp (NTAP), and Lennar (LEN).
Implied Volatility Mover

Disney (DIS) shares are up 1.9 percent to $45.16 and one of only three Dow stocks in positive territory Wednesday morning. Shares of the media company are trading at 52-week highs after earnings were reported late-Tuesday. Options on the stock are busy as well. 36,000 calls and 22,000 puts so far. May and June 36 calls are the most actives in Disney today. Some investors might be liquidating positions on the news, as more than half the volume traded on the bid. Meanwhile, levels of volatility have eased 23 percent to 21, but remain well above the 2012 low of only 16 set in mid-March.
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