Window Dressing

Cusick’s Corner 02-28-2013 After Hours

The market continued to stay in a tight range today. The Dollar, UUP, closed up and Gold continues its slide. While sequestration will be the talk all night, the market seems to be shrugging it off. The month end trade is often called “window dressing” and this time the market has some mixed emotions. Tomorrow is the first day of a new trading month and there may be new buyers, especially as we are getting to some new highs (specifically on the Dow Jones Industrials) which could get some average investors to rethink their non-participation and from a contrarian perspective, could be a turning point if we see that lift.

Stock market averages held modest gains through midday, but the rally fizzled in afternoon trading Thursday. Data released early showed the US economy growing at a tepid .1 percent annual rate in the fourth quarter and below expectations of .6 percent. However, other economic news was better-than-expected. Jobless claims declined by 22,000 to 344K last week, compared to consensus estimates of 360K. Chicago PMI, a gauge of regional manufacturing, was up to 56.8, from 55.6 and better than the 54.0 that economists had anticipated. On the earnings front, The Limited (LTD) moved higher in the wake of its earnings results, but Sears (SHLD) and JC Penney (JCP) fell. Elsewhere, markets scored solid gains across much of Asia and Europe’s equity markets were higher as well. But crude oil is off 87 cents to $91.89 and gold dropped $16 to $1579.5. On Wall Street, the Dow Jones Industrial Average was up modestly midday, but slipped in the final hour to finish down 21 points amid end-of-month position squaring and possibly some jitters surrounding the March 1 sequester deadline in Washington tomorrow. However, for the month, the industrials added 1.4 percent and today approached record highs.

Barnes and Noble (BKS) saw active trading for a second time this week. Options on the bookseller were busy Monday on unconfirmed reports the company was seeking to sell its retail business. The stock was up 51 cents to $15.74 in heavy trading of 5.3 million shares after the company reported earnings and confirmed a strategic committee is in place to evaluate the sale of the retail business. Options volume on BKS was 7X the daily average. 26,000 calls and 7,450 puts traded on the stock. July 20 calls were the most actively traded. 5,045 changed hands against 90 in open interest. July 14 and 16 calls were the next most actives in BKS and 30-day implied volatility in options on the stock eased 20 % to 54.

Bullish trading was also seen in Supervalu (SVU), Dominion Resources (D), and Polycom (PLCM).

It was a rough day for JC Penney (JCP) shareholders. The stock dropped $3.59 to $17.57 on heavy volume of 48.5 million shares in the wake of the company’s latest earnings report. Options volume surged, as 244,000 puts and 80,000 calls traded on the retailer Thursday. The largest blocks printed late in the day, as an investor was apparently buying 12,000 May 16 puts on JCP for $1.56 and selling 24,000 May 12 puts for 88 cents, collecting 20 cents on the 1X2 put ratio spread. The spread traded 30,000X on the day (60,000 of the May 12 puts) and seems to be targeting another leg lower in JCP through the May expiration. A similar Apr 17 – 20 (2X1) put ratio spread was opened in JCP a week ago ahead of the earnings news.

Bearish trading was also seen in Hasbro (HAS), Vishay Intertechnology (VSH), Tibco Software (TIBX).

Index Trading
Overall volume totals were extremely light Thursday. Total volume across the entire market was about 13 million contracts, according to Trade Alert Data, and well below the recent daily average of 15.7 million. In the index pits, 595,000 calls and 696,000 puts traded on the S&P 500 Index (.SPX), CBOE Volatility Index (.VIX) and other cash indexes. The S&P held gains through most of the day, but slipped late to finish down 1.31 to 1,514.68. Meanwhile, VIX saw a late-day spike and finished up .78 to 15.51. For the month, the volatility index added 1.03 points.

ETF Action
The three most active options across the market Thursday were weekly options on the SPDR 500 Trust (SPY) which expire on 3/1: i.e. after tomorrow. Shares dropped 30 cents to $151.61 and the Weekly 152 puts were the most active. 101,483 contracts traded. Weekly 152 and 153 calls were the nest most actives, with more than 80,000 in both contracts. The interest in these very short-dated contracts comes ahead of the March 1 sequester deadline tomorrow and might reflect expectations for heightened volatility Friday as news headlines develop related to the event.


Joe Cusick

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