Materials And Retailers Strong Performers While Energy And Financials Remained Weak

Leadership switched hands Thursday, Material and Retailers were strong performers and Energy and Financials continued to stay weak into the After Hours. Thursday’s trading just highlighted that the market still has no clear directional bias, even in the face of continued better than expected earnings reports. Towards the end of the day there was some options activity in Forest Oil (FST) - a strangle purchase. A strangle is a strategy where one would buy an out of the money put and call, with the same expiration month. The May 20 calls and the May 15 puts were purchased and this is in advance of the company’s earnings release. The long strangle is typically purchased when the strategist believes that the stock could move dramatically, just do not know whether it will be up or down. With earnings for Forest coming out there is the potential for the stock to move because of this event. Berkshire announced today that they will delay announcing their earnings until after their big investor conference. See you Midday.

After Hours

Stocks finished the last day of April on a mixed note. After a 169-point gain Wednesday, the Dow Jones Industrial Average shook off mixed economic news and moved higher again Thursday morning. A report on manufacturing (Chicago PMI) hit the newswires about 15 minutes into the trading session and, when the number was stronger than economist estimates, the Dow moved solidly higher by mid-morning. The rally ran out of steam around 11:00 Central Time, however, after Chrysler announced bankruptcy plans. From that point forward, trading was mostly sideways and uneventful. End-of-month position squaring probably contributed to the choppy market action. At the end of the day, the S&P 500 had lost .8 points. For the month, the index gained 9.4 points. The CBOE Volatility Index (^VIX) hit a low of 34.5, but finished up .42 to 36.50 ahead of data on manufacturing, consumer confidence, factory orders, and auto sales Friday. Trading in the options market was on the light side, with approximately 7.4 million calls and 6.4 million puts traded across the exchanges.

Bullish

A number of solar names were shining Thursday after First Solar (FSLR) reported better than expected earnings. FLSR rallied $35.62 to $187.29 and options volume rose to 5X the usual, with 52,000 puts and 49,000 calls traded. JA Solar (JASO) added 44 cents to $3.51 and options volume jumped to 3X the typical levels, with 3,100 calls and 580 puts traded. Energy Conversion Devices (ENER) rallied $1.22 to $18.38 and options volume rose to 5X the average daily, with 19,000 calls traded, or roughly 2X the number of puts. Bullish trading was also seen in Collective Brands (PSS), Chiquita Brands (CQB), and Pfizer (PFE).

Bearish

Carnival Cruise (CCL) and Royal Cruise (RCL) shares moved higher and puts were active in both names Thursday. CCL gained 35 cents to $26.88 and options volume rose to 3X the typical levels. Heavy trading was seen in June 24 and October 22.5 puts. RCL gained 72 cents to $14.73 and volume picked up in June and September 12.5 puts. It appears that some investors were buying premium, probably on concerns about the swine flu outbreak. On April 28, CCL said it was canceling 3 Mexico cruise stops because of the flu. Bearish trading also surfaced in Allergan (AGN), USB (USB), and Conagra (CAG).

Index Trading

The CBOE Volatility Index (^VIX) has been resilient this week despite the gains in the equity market. The S&P 500 is up 6 points and VIX is down .3 to 36.50 this week. The lack of movement in the volatility index comes after an 8-point drop in April. However, on Thursday, VIX came off lows of 34.5 and closed up .42 to 36.50. Normally, higher VIX is a sign that risk perceptions and fear are rising. If the pattern continues, it could be a sign that sentiment is once again shifting heading into the seasonal “sell in May, go away” period for equities. So far this week, trading has been quiet, however, and there has been a subsequent drop in volume in the index market. 567,000 puts and 344,000 calls traded across all products Thursday.

ETF Trading

The SPDR Regional Bank ETF (KRE) is an exchange-traded fund consisting of 50 regional banking names. Shares of the fund gave up early gains and fell .69 to $20.86 Thursday. In the options, volume was active and focused on June 20 puts, after an investor apparently bought 20,000 contracts for $1.20 on the ISE. A large block of KRE shares traded at about the same time and therefore the trading activity might be part of a protective put strategy–long stock and long puts. Outside of that, the SPDR Trust (SPY), the PowerShares QQQ (QQQQ), and the Select Sector Financials (XLF) had among the most actively-traded ETF options. Approximately 2.1 million puts and 1.70 million calls traded across all exchange traded funds.

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