Cusick's Corner 07-16-2012

Not much happened during today's trading session except that the bears are not willing to take back control until after the testimony of the Fed Chief. I will be focusing on earnings, specifically the blue chips, DIA, looking for any kind of volatility play into the event. Typically could consider looking for potential straddle/strangle plays.
Stock market averages slipped on disappointing data and amid cautious trading ahead of earnings. A report released before the opening bell showed Retail Sales unexpectedly falling -.5 percent in June. Economists were expecting an uptick of .2 percent. At the same time, the NY Empire State Index, a gauge of regional manufacturing activity, was up to 7.4 in July, from 2.3 last month and better than the 3.8 that was expected. Yet, trading was choppy Monday morning on the poor Retail Sales headline and heading into a report on Business Inventories, which was up .3 percent in May and in-line with expectations. The number had little market impact. Trading was also cautious heading into a busy week of earnings, with widely-held names like Goldman Sachs, Yahoo, and Intel due to report Tuesday. Two-day testimony from Fed Chairman Ben Bernanke beginning tomorrow has market-moving potential as well. Consequently, overall volumes were light and had a wait-and-see feel Monday. At the end of the day, the Dow Jones Industrial Average had traded in an 87-point range and was off 50 points. The NASDAQ dropped 11.5.

Citigroup (C) added 16 cents to $26.81 in active trading of 58.5 million shares Monday after the financial services giant reported a 95-cent per share profit on $18.6 billion in revenues. Analysts were expecting 90 cents on $18.9 billion. The stock ticked higher on the better-than-expected headline EPS number and options volume jumped to 2X the daily average. 136,000 calls and 85,000 puts traded in Citi today. The top trades were part of a spread, in which the investor apparently bought 28,000 Mar 31 calls on the stock for $1.69 and sold 28,000 March 36 calls at 66 cents. If so, $1.03 was paid per spread and this position seems to be an opening play in anticipation of a move back towards the mid-30s for Citigroup shares through March 2013. The stock has not performed well in recent months, however, falling from $36.55, or 26.6 percent, since the end of March 2012.
Bullish trading was also seen in Ralph Lauren (RL), Duke Energy (DUK), and Yamana Gold (AUY).

The poultry producers were under fire again Monday. Corn futures were almost limit up in afternoon action, gaining 47 cents, and the recent surge in prices is raising concerns about the impact of higher feed costs on companies like Tyson (TSN), Smithfield (SFD), and Pilgrim's Pride (PPC). Players in the options market seem to share those concerns, as put volume picked up in all three names Monday. In PPC, for example, options volume was 7.5X the daily average. 1,975 puts and only 47 calls traded on the stock. Shares lost 14 cents to $5.46 and August 5 puts saw the bulk of the flow. 1,925 contracts changed hands.
Bearish trading was also seen in Lexmark (LXK), Alliant Techsystems (ATK), and Textron (TXT).
Index Trading

Overall volumes were light to start the week, but are likely to pick up as things progress in the days ahead. Not only are the floodgates set to open on second quarter earnings, but Fed head Ben Bernanke is speaking to Congress over the next two days and the July expiration Friday is later this week as well. Today, however, only 441,000 calls and 484,000 puts traded across the S&P 500 Index (.SPX), the CBOE Volatility Index (.VIX) and other cash indexes, which is 77 percent the average daily volume, according to Trade Alert data. The S&P 500 Index lost 3.14 points to 1,353.64 and VIX, which tracks the expected volatility priced into S&P 500 Index options, edged up .37 to 17.11. S&P 500 September 1,350 puts and calls, which are now very near-the-money, were the day's most actively traded contracts. More than 20,000 traded in both. Some players might have been buying the SPX Sep 1350 straddle (puts and calls) in anticipation of a big market move between now and mid-September.
ETF Action

PowerShares DB Agricultural Fund (DBA) added 28 cents to $29.71, as the ongoing rally in corn has helped lift the ag commodities lately. DBA, which is designed to track the price moves of wheat, soybean and other agricultural crops, has experienced a one-month 14.3 percent rally. Options on the ETF were busy today. 9,830 calls and 2,955 puts changed hands, which is more than double the daily average for the product. July 29 calls are now 71 cents in-the-money and expiring at the end of this week. 3,590 traded. August 30 calls were the second most actives. Some investors might have been liquidating positions in July 29 calls after the recent run higher, but also taking new positions in the out-of-the-money August 30 calls in anticipation of additional gains in DBA shares.
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