Cusick’s Corner 02-03-2012
Run, that’s what the market did on the data. This is solid for the market that has had these types of catalysts since October. What I haven’t seen today is the big money joining the chase, but the shorts are not present. I see the S&Ps next challenge to the upside, 1350, and if that area is reached, could be a point of possible exhaustion. Here’s something for technicians — Equities, SPY, QQQ, IWM, are in an inverse head and shoulders and are putting in the right shoulder. If this formation is created, means that the neckline or resistance would be a point where the market rests, making a small pullback which then may be a point where big money jumps potentially into this market. See you After Hours.

Stock market averages are holding gains with help from jobs data Friday. The table was set for morning gains on Wall Street after the Labor Department said the US economy added 243,000 jobs in January, which was much better than the 155,000 that was expected. Meanwhile, the unemployment rate fell to 8.3 percent from 8.5 percent. Economists were expecting the rate of unemployed to hold steady at 8.5 percent. Separate data showed Factory Orders up 1.1 percent and .4 percent less-than-expected. However, the ISM Services Index for January, which tracks nationwide economic activity outside of manufacturing, jumped to 56.8 in January, from 53.0 in December and much better than the 53.1 that was expected. The focus, however, was on the strong headline payroll number. European equity markets also finished higher and UK’s FTSE helped pace the advance with a gain of 1.8 percent. Bonds fell and gold gave up some of its recent gains, as more capital was flowing out of “safe havens” and back to the equity market. Gold is down $18 to $1741 an ounce. Crude is holding 72 cents higher to $97.08 a barrel. On Wall Street, the Dow Jones Industrial Average is up 156 points and 9 points from session highs. The NASDAQ gained 47. CBOE Volatility Index (.VIX) is down .98 points to multi-month lows of 17. Overall options volume is running at very high levels for a non-expiration Friday, with 6.7 million calls and 5.5 million puts changing hands by 12:30pm ET.

Bullish Flow
Boston Scientific (NYSE:BSX), which reported earnings yesterday morning, is seeing high call volume today. Shares of the medical-device maker are up 20 cents to $6.04 and have recovered nearly all of the 4.1 percent loss suffered yesterday after the profit report came up short of some expectations. Trading is heavy. 18.5 million shares so far, which is more than double the normal levels. Meanwhile, options volume is also impressive after 22,000 calls and only 600 puts traded on the stock through midday. February 6 calls, which are now four cents in-the-money and expiring in two weeks, are the most actives. 11,200 have changed hands. February 7, March 6 and March 7 calls on BSX are seeing active trading as well. There’s speculation that the company is the target of Private Equity interest making the rounds today. It appears to be unsubstantiated market chatter thus far, but the talk seems to be the catalyst for the high share and call options volume in BSX today.

Pioneer Natural Resources (NYSE:PXD) has had a good week. The stock is up $1.79 to $10.45 today and 7.2 percent from a week ago. Meanwhile, options volume in PXD is running 4.5X the daily average. 7,260 calls and 7,000 puts traded on the Irving, TX oil and gas company thus far. Much of the volume is due to one spread trade, in which the strategist sold 5,000 February 95 puts on PXD at 70 cents per contract, bought 2,500 February 105 calls for $3.30 and sold 2,500 February 115 calls at 35 cents. In other words, 5,000 Feb 95 puts were sold on the stock to buy half as many (2500) March 105 – 115 put spreads for $2.95 per spread. This three-way, which obligates the investor to buy or have “put” the stock for $95 per share through the expiration, is a bullish play with a max payout if shares rally to $115 or beyond through the February expiration.

Bearish Flow
While global equity markets cheered today’s jobs data, the options order flow in the iShares Emerging Markets Fund (EEM) seems somewhat bearish today. 560,000 puts and 139,000 calls traded on the fund. Morning trades included a substantial put spread, in which the strategist bought 22,000 March 43 puts on EEM for $1.13 and sold 22,000 March 38 puts at 19 cents. The spread, for a 94-cent net debit, is a bearish play that offers its best payout if shares fall to $38 or below through the March expiration, which represents a 13.4 percent decline in the emerging markets fund over the next six weeks. EEM, which holds shares of companies from markets from developing economies, is up 73 cents to $43.89 Friday and has rallied more than 15 percent year-to-date. Some investors are possibly buying puts and put spreads on the fund to hedge the risk of short-term volatility across global equity markets.

MIPS Technology (NASDAQ:MIPS), a Santa Clara, CA chipmaker, is off 9 cents to $6.41 and it appears that some investors are buying deep out-of-the-money puts on the stock today. The focus is on April 4 puts, which have traded 5,825 contracts against 1,476 in open interest. The top trade is a 575 lot for 15 cents when the market was 10 to 15 cents. It’s not clear why some investors might be buying new positions in these puts. The contract is 37.6 percent out-of-the-money after 43.5 percent rally in the stock so far in 2012. Earnings were reported on January 25.

Unusual Volume
Zynga (ZNGA) options volume is running 7.5X the (22-day) average, with 92,000 contracts traded and call activity accounting for 55 percent of the volume.

MannKind (NASDAQ:MNKD) options volume is 3X the daily average, with 72,000 contracts traded and put volume representing 83 percent of the activity.

Gilead Sciences (NASDAQ:GILD) options volume is running 4X the average daily, with 58,000 contracts traded and call volume representing 68 percent of the total volume.

Increasing options activity is also being seen in National Oilwell (NYSE:NOV), Avis (NYSE:CAR), and AIG.

Implied Volatility Mover
Implied volatility in the options on Zynga (ZNGA) continues to move higher amid high levels of options volume in the stock. ZNGA has been on a tear this week after Facebook’s IPO plans triggered a flurry of activity in other names in the social media space. ZNGA is among them. The stock is up $1.32 to $13.71 today and has rallied 36.1 percent since a week ago. High options volume has accompanied the move. 52,000 calls and 42,000 puts traded on the San Francisco-based Internet company so far today. Meanwhile, implied volatility in the options on the stock is up 18 percent to 124.5 today and has surged almost 50 percent on the week.

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