Bandwidth Shrinking After Hours 02-06-2013

Cusick’s Corner – After Hours

The market continues to chop around 1500 on the S&Ps. While the bulls have the momentum at this juncture, we are getting to a stage where a consolidation or pullback could be healthy. Right now the market has not been able to break upside resistance, 1515 on the S&Ps. Getting long has had a good Risk to Reward, especially after this one month ~7% move to the upside. I would like to see a pullback, 1460-1470 on the S&Ps, and a hold at these levels that were resistance last fall and would be the next support level on a meaningful pullback. Right now with volatility across the board continuing to contract and the market at overbought levels in the major indices (except for the NASDAQ), I continue to tread lightly.

Stock market averages seesawed in and out of positive territory and finished mixed Wednesday. With no economic data to guide the action, some of early attention was on overseas markets. Japan’s Nikkei scored a 3.8 percent gain overnight, to its highest levels since 2008, and led Asia’s equity markets on reports Governor Masaaki Shirakawa had stepped down three months earlier than expected. The news seemed to fuel speculation that more aggressive easing by Japanese officials is in offing in the intermediate-term. However, European equity markets were mostly lower and the euro dropped .5 percent to 1.352 amid renewed political and economic uncertainty in the region ahead of a meeting of EU leaders tomorrow. Crude oil rebounded from early losses and is up 19 cents to $96.83 on weekly inventory data. Gold gained $4.5 to $1686. On Wall Street, earnings news continues to drive a lot of the action as well. Zynga (ZNGA), Melco Crown Entertainment (MPEL), and Take Two (TTWO) were among the day’s big earnings moves. Dow component Disney (DIS) also reported results and helped the industrial average to a modest 8-point gain. The NASDAQ lost 3.1 points.

Bullish

International Game Technology (IGT) saw higher options volumes Wednesday, for the second time this week. 11,000 calls and 200 puts traded on the Las Vegas, NV maker of video gaming systems Monday and the flow created 6,600 contracts of new open interest in the April 17 calls on the stock. Shares rose 30 cents to $15.94 today and options volume was 6X the daily average. About 16,000 calls and 300 puts traded in IGT. April 18 calls were the most actives. 8,220 contracts traded against 424 in open interest. Another 3,500 April 17 calls also changed hands. It’s not clear what is motivating the increased interest in April call options on International Game Technology this week, but the overall flow seems to express confidence in the stock for the next few months. Shares have already rallied 42.3 percent off the 52-week lows six months ago.

Bullish trading was also seen in US Airways (LCC), Cemex (CX), and Millennial Media (MM).

Bearish

Sony (SNE) might be a name worth watching tomorrow. The Japanese electronics giant is due to release earnings before the opening bell and trading in the options on the stock was busy heading into the report. Shares were down a penny to $15.82 Wednesday and options volume included 9,380 puts and 4,615 calls. February 15 puts, which are now 82 cents out-of-the-money and expiring in 9 days, saw a flurry of activity in afternoon action. Most of the traders were in smaller lots for 35 cents per contract when the market was 25 to 35 cents. At the end of the day, 5,893 Feb 15 puts traded on SNE against 2,012 in open interest, as some investors might have been buying the short-term puts ahead of the news to hedge the earnings event risk.

Bearish trading was also seen in Triquint Semi (TQNT), XL Capital (XL), and HCA.

Index Trading

Overall options volumes remain relatively light in early-February. In the index market, for example, about 567,000 calls and 604,000 puts traded on the S&P 500 Index (.SPX), CBOE Volatility Index (.VIX), and other cash indexes, which is only about 70 percent of the recent daily average volume, according to Trade Alert data. The S&P finished up .83 to 1,512.12 and VIX, which tracks the implied volatility priced into SPX options, lost .31 to 13.41. However, the decline in implied volatility wasn’t market-wide and some of the individual equities were seeing higher IV Wednesday. For example, VXGOG, which tracks the implied vols of Google (GOOG) options, was up 1.06 to 21.24. VXAPL (Apple IV) rose 1.55 to 29.66 and VXIBM ticked up .61 to 16.83.

ETF Action

Correction to the midday update, where we noted a hefty buyer of February – March 43 puts spreads on the iShares Emerging Markets Fund (EEM). In fact, the spread was a February 44 – March 43 put spread for 8 cents. In this strategy, an investor sold 105,000 February 44 puts on EEM at 55 cents and bought 105,000 March 43 puts for 63 cents. The spread, for 8 cents, probably rolls out a bearish position, or hedge, from February to March and down 1 strike price. EEM lost 5 cents to $43.92 today and Feb 44 puts on fund are 8 cents-in-the-money and expiring at the end of next week. There’s 157,606 in open interest in the strike and therefore some of those positions are being liquidated, while a new position opened in March 43s. The ETF holds names from developing economies like Russia, Brazil and China, and the hefty put purchase in March might be designed to help hedge a basket of stocks, which includes holding from developing markets, over the next five weeks.

Joe Cusick

http://www.optionsxpress.com

Read more: http://www.xpoundblog.com/2013/02/bandwidth_shrinking_02-06-2013.html#ixzz2KACGQcx0