Tight Range and Advance Continues

Cusick’s Corner 08-15-2012 5:08 PM

The grind continues in the equities, but Middle East headlines continue to catalyze the energy markets. Crude and Nat Gas have a supported bid and these were the two markets that were on my radar all day. If you have August positions, get them cleaned up tomorrow.

Stocks finished mixed on another day of quiet trading. The underlying tone was a bit cautious early after a report showed NY Empire Index falling -5.9 in August. Economists were expecting the gauge of regional manufacturing activity to hold steady at +5.0. CPI, an index of price inflation at the consumer level, was flat in July. A .2 percent increase was expected. Industrial Production for July was up .6 percent an in-line with expectations. Trading was sluggish around the data early, but then market averages strengthened a bit mid-morning after the latest NAHB Index of homebuilder sentiment showed improvement to five-year highs. The index hit 37 in August, from 35 the month before and 2 points better than expectations. With not much news flowing from overseas, stock market averages were mixed into midday and the pattern continued into the closing bell. At the end of the day, the Dow Jones Industrial Average had traded in a narrow 55-point range and finished down 7 points. The NASDAQ added 14.


Sprint (S) had an interesting day. Shares ticked higher at the open and then rallied in midday action. At the end of the day, the stock was up 40 cents to $5.39 and new 52-week highs. Stock volume surged to 136.5 million shares. Meanwhile, 238,000 calls and 52,000 puts traded in Sprint today. The largest trade of the day was a January 3 – 4 call spread sold on Sprint at 64 cents, 39000X, and is possibly a closing trade after the monster move in the stock. Sprint has more than doubled in just a few months. Meanwhile, September 5, November 6, August 5.5 calls, August 5 calls, and August 6 calls were the next most actives on the telecomm today. It’s not clear what motivated the jump in the stock or the heightened call activity, as there were no obvious company-specific headlines to explain the bullish activity. Sprint is already up nearly 60 percent since earnings were reported just a few weeks ago. Judging by today’s options activity, some players in the options market seem to think the trend might continue in the weeks/months ahead.

Bullish trading was also seen in Pfizer (PFE), Hunstman (HUN), and Walter Energy (WLT).


Nokia (NOK) saw high call volume as well. NOK added 15 cents to $2.64 on relatively light volume of 43 million shares. By way of comparison, typical daily volume in the Finnish telecommunications giant is about 57.5 million shares. Meanwhile, 94,000 calls and 29,000 puts traded on the stock, which is 2.5X the daily average. The top trade was a 45,000-contract block of September 3 calls sold on the stock at an average of 7.5 cents. At the end of the day, more than 88,000 Sep 3 calls traded on NOK against 11,047 in open interest. It’s not clear what was motivating the action, but some players were apparently selling calls to open new positions on the view the upside in NOK is limited through the September expiration (37 days). Shares have already advanced more than 40 percent over the past month.

Bearish trading was also seen in Goodyear Tire (GT), Kroger (KR) and LSI Logic (LSI).

Index Trading

After closing at its lowest levels since June 2007 Monday, CBOE Volatility Index (.VIX) bounced 1.15 points to 14.85 yesterday and then slipped back .22 points to 14.63 Wednesday. VIX, which tracks the expected volatility priced into S&P 500 Index (.SPX) options, might continue to see some unusual swings in the days ahead due to expiration. August options on most products expire at the end of the week. For SPX and many other index products, settlement values are computed Friday morning and the last day to trade will be tomorrow. VIX options settle on a Wednesday morning – sometimes before and sometimes after the standard expiration. In this case, the VIX August contracts expire one week from today and have four trading days of life remaining. Trading was very light in the product today, however. 261,000 calls and only 57,000 puts traded in the VIX pit Wednesday.

ETF Action

SPDR Technology Financials (XLF) saw impressive volume Wednesday. Shares gained a nickel to $14.98 and total volume in the product was 291,000 calls and 86,000 puts – which is 3.5X the recent daily volume for XLF options. The top trade surfaced early when an 88,000-contract block of October 16 calls traded on XLF for 12 cents per contract on the AMEX. An investor bought the massive block, according to a source on the exchange floor. At the end of the day, more than 165,000 traded against 7,733 in open interest. September 16 calls were the second most actives in XLF. 80,380 traded against 48,738 in open interest. It’s not clear what motivated the heavy activity in $16 calls on XLF Wednesday, but the overall action seems to reflect a bullish short-term view on the financial sector. The exchange-traded fund is one of nine sector funds that collectively hold the S&P 500 names grouped by economic sector. XLF represents ownership in all of the financial-related names.


Joe Cusick

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