Melt-Up Continues

Cusick’s Corner 5.15.13

Stock market averages finished with gains after a day of whippy trading Wednesday. The economic news was mostly disappointing after the NY Manufacturing Index for May slipped to -1.4, from 3.1 and below expectations of 3.5. The Producer Price Index [PPI] was down .7 percent in April and more than the -.5 that was expected. Industrial Production dropped -.5 percent for April and below expectations of -.2 percent. Meanwhile, the NAHB Homebuilder Sentiment Index, released later, printed at 44 for May, from 41 last month and in-line with expectations. On the earnings front, Deere (DE) was down 4.4 percent in the wake of its earnings report. Macy’s (M) and Agilent (A) moved higher. Meanwhile, crude oil dropped as much as $2 in the wake of weekly inventory data, but finished up .1 percent. Gold is off $35 to $1390. On Wall Street, the Dow rallied as much as 85 points shortly after midday, but then erased most of the gains, before bouncing again late. At the closing bell, the Dow was up 61 points. The NASDAQ added 9 points in spite of a $15 per share drop in Apple.

Today’s Bullish Trading

Barrick Gold (ABX) dropped $1.03 to $19.47, as the gold miners continue to feel the weight of falling gold prices. The yellow metal is off another $35 to $1,390 Wednesday. In options action, trading in Barrick Gold has been active today. About 98,000 calls and 17,000 puts traded on the gold miner. The top trades printed midday when an investor apparently bought 33,000 January 2015 $35 calls on ABX for 98 cents per contract. Later, 15,000 January 2015 $25 calls were apparently bought for $2.31. The activity appears to be opening of new positions and, if so, seeming to reflect a bullish view on the stock through 2015.

Bullish trading was also seen in Regions Financial (RF), Zynga (ZNGA), and Waste Management (WM).

Today’s Bearish Trading

Annaly Capital (NLY), a New York-based management company specializing in real estate investments, was up 8 cents to $14.82 in active trading of 12 million shares Wednesday. Meanwhile, approximately 19,000 puts and 3,400 calls traded on the stock, which is 2.5X the daily average. July 14 puts, which are 5.5 percent out-of-the-money, saw the most volume. 6,470 contracts traded. Jun 14 and May 15 puts were the next most actives in NLY and implied volatility in the options on the stock was up 5.5 percent to 19.5. It’s not clear what motivated the increased put activity. The stock is down 7 percent month-to-date. Some investors are possibly buying protective puts on NLY for fear of further losses in the shares.

Bearish trading was also seen in Sotheby’s (BID), Livenation (LYV), and Pike Electric (PIKE).

Index Recap

Trading in the options market was active today heading into the options expiration. In the index market, for example, about 1.3 million calls and 875,000 puts traded on the S&P 500 Index (.SPX), S&P 100 Index (.OEX), and other cash indexes; which is significant more than the recent daily average of 1.55 million contracts (puts and calls), according to Trade Alert data. SPX was up 8.44 points to 1,658.78 and new record highs. Meanwhile, CBOE Volatility Index (.VIX), which tracks SPX implied volatility, was up .04 to 12.81. Today marks the second consecutive day that VIX moved higher along with SPX. The volatility index typically moves lower when the S&P 500 heads north. However, VIX is at low levels below 13 and therefore might not have too much room to fall. Instead, it seems to be ticking around in a range.

Analyzing the ETF Market

SPDR 500 Trust (SPY) added 89 cents to $166.12, new record highs, and short-term put options on the ETF continue to see heavy trading. Volume in May 163 puts on SPY approached 300,000 contracts yesterday and the flow created more than 207,000 contracts of new open interest. The May 163 puts on SPY, which expire at the end of the week, is now the 9th largest block of open interest in the market today. Some of the activity today turned to May 165 puts on SPY. More than 167,000 contracts traded, which makes it the day’s most actives. Some investors are possibly buying short-term puts on the Spiders on the view that volatility might tick higher before the weekend and heading into expiration Friday.