Cusick’s Corner 02-15-2012
I have talked about this type of market in the past where the risk in the upside, or more specifically with missing the upside, is the risk. While yields in bonds are still not moving and are up pricewise, the S&Ps were able to break 1350. If this can hold into the close then this could keep the strength in the bid. I do not want to see a close below 1350 at the end of day because this may put into further question the current upside. Some of the big money may be sweating right now, and if there is a move to the upside then this might create some type of buying frenzy similar to what can be seen in a short squeeze. See you After Hours.

Stock market averages are lower through midday. Economic news was in focus early and included a NY Empire State Index of manufacturing activity, which was up to 19.5 in February, from 13.5 last month and significantly better than the 14.0 that was expected. However, industrial production was flat in January. A .6 percent increase was expected. A third piece of data showed the NAHB Index of Homebuilder Sentiment jumping to 29 in February, from 25 the month before and significantly better than the 26 that was expected. Market averages were mixed through most of the morning action on the data. However, a modest round of selling pressure surfaced around Noon Central Time and sent market averages to session lows. The catalyst for the midday turnaround in snot clear, but Apple Computer (NASDAQ:AAPL), which hit a record high early of $526.29 early, saw a sharp reversal and is down $1.55 to $50.7.63. The turnaround in Apple helped push the NASDAQ into negative territory. The NAZ is down 1.4 points. The Dow Jones Industrial Average was under water throughout morning trading and is now down 85 points midday. CBOE Volatility Index (.VIX) added 1.77 to 21.31. Overall options volume is picking up to the best levels so far this week, with 5.1 million calls and 4.7 million puts traded through 12:35pm ET.

Bullish Flow
Deckers Outdoor Products (NASDAQ:DECK), a Goleta, CA footwear manufacturer, is rallying amid increasing options volume today. Shares, which had suffered a four-day 7 percent slide prior to today, are up $3.87 to $85.05 with 1.5 million shares traded. Typical volume through midday is about 840K. Meanwhile, 12,000 calls and 2,950 puts traded on the stock. February 85 calls, which are now at-the-money after today’s rally, are the most actives. 3,680 traded. 1,250 February 87.5 calls have changed hands. The interest in February upside calls on DECK is interesting because the contracts expire in less than three days. Moreover, there appear to be no headlines to explain the strength in the underlying or high volume. Earnings are expected on February 23, which lies outside of the Feb expiration. For whatever reason, bullish sentiment is building and this name might be worth watching in the days ahead.

Liz Claiborne (NYSE:LIZ) touched new 52-week highs and is trading up 34 cents to $10.31 midday Wednesday. Options volume is picking up in the name as well. Total volume is 6X the daily average after 8,760 calls and 160 puts traded in LIZ today. The top trade is a 4,600-contract block of July 13 calls on the AMEX. The block of calls was bought, according to a source on the exchange. 6,123 LIZ July 13 calls traded against zero contracts in open interest. July 11 and 14 calls on LIZ are seeing interest as well and implied volatility in the options is moving 6.5 percent to 54 ahead of a February 29 earnings release.

Bearish Flow
The largest options trade so far today is in the PowerShares QQQ (QQQ). Shares were holding a 52-cent gain to $63.73 at the time when one strategist bought 32,000 March 62 puts on the ETF and sold 64,000 March 59 puts. Both blocks traded on the CBOE, where a source tells us that the massive 1X2 put ratio spread was bought for 13.5 cents (per 1X2). If so, an investor might have initiated the spread as a short-term hedge. The max payout happens if shares fall to $59 through the expiration, which represents a 7.4 percent decline over the next four and a half weeks. There is additional risk to the downside when initiating put ratio spreads because only half of the lower strike puts, which were sold, are covered by the higher strike prices that are bought.

Puts on Earthlink (NASDAQ:ELNK) are active ahead of earnings. Shares are off a nickel to $8.12 and options volume, which normally totals about 100 contracts through midday, is 7,060 calls and 280 puts. The action is focused on downside $8 puts, which are 1.5 percent out-of-the-money. Feb 8s are the most actives. 4,375 traded. Another 2,060 March 8 puts and 525 April 8 puts changed hands. Levels of implied volatility are moving up 44 percent to 47 ahead of the news. The company is due to release results tomorrow morning. The stock rallied 6.7 percent on 10/27 when earnings were last reported.

Unusual Volume
Abercrombie (NYSE:ANF) options volume is running 3.5X the (22-day) average, with 68,000 contracts traded and call activity accounting for 59 percent of the volume.

Zynga (ZNGA) options volume is 3X the daily average, with 116,000 contracts traded and put volume representing 55 percent of the activity.

Juniper Networks (NASDAQ:JNPR) options volume is running 2X the average daily, with 62,000 contracts traded and call volume representing 81 percent of the total volume.

Increasing options activity is also being seen in Deere (NYSE:DE), Devon Energy (NYSE:DVN), and Weight Watchers (NYSE:WTW).

Implied Volatility Mover
CBOE Volatility Index (.VIX) is up 1.75 to 21.29 amid concerns about the European debt crisis. Greece is inching along in negotiations with creditors, but no decisive deal has been reached ahead of a March deadline to avoid a debt default. The uncertainty seems to be keeping a bid under the volatility index. Meanwhile, VIX February options expired today and the settlement is 20.44. Upside 30, 35 and 55 calls had the largest open interest positions in the index ahead of the expiration. All three contracts expired worthless. March 24, 29 and 35 calls are the most actives in the index today, as some investors are likely opening new positions in March after February call options had expired.
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