Cusick’s Corner

The trade is quiet going into the Fed announcement and don’t forget that tomorrow the ECB will be meeting as well. Market players will be listening to Big Ben’s press conference to find out whether or not the Fed will extend the balance sheet, so watch the Gold action at if you hear him discuss that. If there are strong clues pointing to QE3, watch the Euro currency. At this stage we are all looking for that catalyst, potentially shaking out recent longs or shorts to reveal a path. I will be watching to see if key resistance at 1250 or support at 1215 is broken after the announcement. See you After Hours.

Stock market averages are higher with help from jobs data and ahead of a Federal Reserve interest rate announcement. Domestic economic news was in focus early after ADP reported that the US economy added 110,000 private sector jobs in October, which was better than the 100,000 increase that economists had expected. Now, attention shifts to the FOMC. A two-day meeting concludes with a statement release at 12:30pm ET. While no changes in rates are expected, the text will be scrutinized for clues regarding future monetary policy. Steady trading across the Eurozone, including a 2.3 percent bounce in Germany’s DAX, helped lift stock market averages in the US as well. After tumbling almost 300 points on fears about the European Debt Crisis Tuesday, the Dow Jones Industrial Average is up 170. The tech-heavy NASDAQ gained 27.6. CBOE Volatility Index (.VIX) gave back 1.68 to 33.09. Options volume is much slower than Tuesday, with 3.4 million calls and 3.2 million puts traded across the exchanges through 12:00pm ET.

Bullish Flow
First Solar (FSLR) is seeing interesting options action ahead of earnings. Shares, which have plummeted 63.5 percent year-to-date, are trading up $1.18 to $47.96. Meanwhile, 11,000 calls and 6,000 puts traded on the stock through midday. The Weekly 55 and 60 calls, which expire on 11/4, are the most actives. 2,530 traded at the 55 strike and 1,020 contracts traded at the 60 line. Most of the action is in smaller sizes. The top trade is a 96-lot of Weekly $60 calls for 21 cents per contract. Some speculators might be taking positions in upside calls in FSLR on hopes the stock will recover some of its recent losses when earnings are reported tomorrow afternoon. After that, the Weeklys have just one trading day of life remaining and, if the stock doesn’t rally through the strike price (55 or 60), the contracts will expire worthless and the debit paid is lost.

XL Capital (XL), a Bermuda-based reinsurance company, is trading up, even after the company’s earnings fell short of expectations. After the close of trading Tuesday, the company said it earned 28 cents per share in the quarter, which was 7 cents worse-than-expected. Shares, which had given up 8.2 percent in the three days leading up to the earnings release, are up 9 cents to $21.02. Meanwhile, options volume on the stock is 6,350 calls and 425 puts. November 23 calls, which are 9.4 percent out-of-the-money and expiring in 16 days, are the most actives. 3,600 traded. November 22 calls are busy as well. It appears that some investors are buying short-term upside calls on the stock on hopes shares will continue to move higher over the next two and a half weeks.

Bearish Flow
Sysco (SYY) options order flow is bearish for a second day. May 25 puts on the food company saw interest yesterday, as 5,400 traded and open interest increased by almost 5,000 contracts. Shares are up 38 cents to $27.58 and the same contract is active again today. The volume includes a 7,100-contract block traded at the $1.20 asking price. 9,591 now traded and will likely add to the positions opened yesterday. May 25 puts on SYY are 9.4 percent out-of-the-money and some shareholders might be taking positions in the contract to hedge stock heading into a November 7 earnings release.

Goldman Sachs (GS) is up $2.92 to $106.46 and attempting to rebound from a two-day 10.6 percent drop suffered Monday and Tuesday. Noteworthy trades in the investment bank Wednesday morning include a put spread, in which the investor apparently sold 2,500 April 100 puts on the investment bank at $10.34 and bought 5,000 April 75 puts for $4.17. In other words, a 1X2 put ratio backspread was initiated on Goldman for a $2 net credit, 2500X. The strategist keeps the credit if the position is held to the expiration and GS settles above $100. At that point, all the puts expire worthless. Profits are also possible if the stock sees a dramatic move lower. Use the Analyze This Trade link to see the downside breakeven on a backspread.

Unusual Volume
Electronic Arts (ERTS) options volume is running 3X the (22-day) average, with 59,000 contracts traded and call activity accounting for 82 percent of the volume.

Monsanto (MON) options volume is 2X the average daily, with 44,000 contracts traded and call volume representing 55 percent of the activity.

Starwood Hotels (HOT) options volume is running 4.5X the average daily, with 31,000 contracts traded and call volume representing 75 percent of the total volume.

Increasing options activity is also being seen in JDS Uniphase (JDSU), MasterCard (MA), and EOG Resources (EOG).

Implied Volatility Mover
Career Education (CECO) is under pressure today after the company reported earnings that fell short of expectations. The company also announced that it had completed an internal investigation of student placement rates related to a New York Attorney General subpoena of the company and that its Chief Executive was stepping down. CECO shares are hammered – down $6.69 to $9.26. Options volume is running 7.5X the daily average, with 4,250 puts and 1,650 calls traded on the stock. Implied volatility in CECO options jumped 58 percent and is very high of 117.

No Comments
Joe Cusick

Joseph Cusick is currently Vice President of Wealth and Asset Management at MoneyBlock. Joseph is passionate about marrying his 20 years of market experience and the powerful tools at MoneyBlock with the goal of empowering wealth managers with the tools to better manage and grow their business. Joseph was previously the Senior…