Cusick’s Corner 5.8.13

Stock market averages moved higher through midday and traded in a narrow range in the afternoon session Wednesday. With no economic data due out until jobless claims tomorrow morning, some of the focus was on earnings. Dow component Disney (DIS) dropped early, but finished little changed after the company reported better than expected earnings per share and revenue numbers after the bell Tuesday. The stock slipped 8 cents to $65.99 today after rallying 32.6 percent year-to-date, record highs, ahead of the report. Meanwhile, McKesson (MCK), Whole Foods (WFM), and Davita Healthcare (DVA) were among a handful of names seeing post-earnings strength Wednesday. Elsewhere, Germany’s DAX moved to record highs amid a broader advance across the Eurozone. Asia’s markets were mostly higher as well. Crude oil ticked up on weekly inventory data and gathered momentum later in the day. Crude was up 90 cents to $96.52 and gold gained $22.5 to $1471. On Wall Street, the Dow Jones Industrial Average the Dow was up 20 points midday and finished up 49. The NASDAQ tacked on 16.6 points. On a side note, if you live in the Chicago metro area we will be co-hosting an in-person Trading Forum this Saturday.

Today’s Bullish Trading

Peabody Energy (BTU), a St. Louis, MO coal producer, was up 43 cents to $20.90 and options volume on the stock was 2.5X the daily average. Approximately 29,000 calls and 7,000 puts traded on BTU today. The top two trades were part of a spread, after an investor bought 5,100 June 21 calls on the stock for $1.05 and sold 5,100 June 23 calls at 35 cents. The spread, for 70 cents, traded multiple times across different exchanges and appears to be opening activity (volume exceeds open interest). If so, it seems to be a bullish play on BTU in anticipation of a move higher in the stock through the June expiration (44 days). The company reported earnings on 4/18 and the stock fell to new 52-week lows in the days that followed. Shares have since rebounded 14.7 percent.

Bullish trading was also seen in Owen’s Corning (OC), (BIDU), and Mosaic (MOS).

Today’s Bearish Trading

Lamar Advertising (LAMR) dropped 61 cents to $47.99 in active trading of 2.3 million shares in the wake of the company’s earnings report. Meanwhile, options volume on the stock was 20X the daily average. About 30,000 puts and 8,000 calls traded on the ticker. The top two trades were part of a spread, in which the investor apparently bought 9,300 July 45 puts on LAMR for $1.50 and sold a roughly equal number of July 38 puts at 30 cents. If so, the Jul 38 – 45 put spread, for $1.20, seems to be an opening purchase and a bearish trade targeting a dramatic drop in the stock through mid-July. An investor with a stock position in LAMR might have initiated the spread as a type of protective put strategy on the stock.

Bearish trading was also seen in CBS, Chico’s (CHS), and RR Donnelly (RRD).

Index Recap

Overall volumes picked up a bit Wednesday, including in the index market. About 834,000 calls and 703,000 puts have traded on the S&P 500 Index (.SPX), CBOE Volatility Index (.VIX), and other cash indexes, which is about typical volume for the index market, according to Trade Alert data. The S&P 500 continues its climb and notched its fifth consecutive record high. SPX added 6.73 points to 1,632.69. In options action, 501,000 calls and 529,000 puts traded on the S&P. June 1625 puts and calls were the most actives in the SPX pit. Meanwhile, VIX, which tracks the expected or implied volatility priced into S&P 500 options, was down .17 to 12.66. Volume was very light in the VIX pit. 204,000 calls and 106,000 puts traded on the volatility index. VIX May 17 calls and May 25 calls were the most actives.

Analyzing the ETF Market

A hefty spread traded in the iShares Emerging Markets Fund (EEM) Wednesday morning. Shares are up 34 cents to $44.23 heading into the closing bell and, earlier in the day, an investor bought 55,775 June 44 calls on the ETF for $1.01 per contract and sold 111,550 June 46 calls at 24 cents per contract. If opening, the 1X2 call ratio spread, for 53 cents, appears to be an advanced options strategy on the emerging markets targeting a move in EEM to $46 per share through the June expiration, or a 4 percent advance over the next 44 days.