No Specific Catalysts for the Whippy Trading

Cusick’s Corner

Stocks struggled to find direction and market averages finished mixed Monday. News that Standard &Poor’s upgraded Unites States’ credit rating to Stable, along with a 4.9 percent rally in Japan overnight, seemed to help set the tone for positive trading at the open. However, the Dow and NASDAQ both fell into the red shortly after the start of trading after rallying sharply Friday. With no economic news or earnings of significance to guide the action, there didn’t seem to be a specific catalyst for the whippy trading. At the same time, action was sluggish across the Europe and mixed in the commodities market. Crude oil is off 22 cents to $95.81 and gold added $2.5 to $1385.5. On Wall Street, the Dow and NASDAQ were modestly higher through midday and didn’t do much in the afternoon session. At the closing bell, the Dow was down 9 points and the NASDAQ down 4.5.

Today’s Bullish Trading

Kandi Technologies (KNDI) has seen impressive trading activity lately. Shares of the Chinese electric vehicle-maker rallied 36 percent last Wednesday after the company received another EV model approval by the Ministry of Industry and Information Technology. After bouncing around Thursday and Friday, KNDI was up another 38 percent to $7.85 today on heavy turnover of 9.3 million shares. Meanwhile, 11,000 calls and 2,450 puts traded in the name today, which is 16X the daily average. December, June, and July 7.5 calls were the most actives in KNDI and 30-day implied volatility was up 3 percent – elevated at 137.5 percent.

Bullish trading was also seen in Diamond Foods (DMND), Facebook (FB), and T-Mobile US (TMUS).

Today’s Bearish Trading

Staples (SPLS) notched new 52-wek highs and finished the day up 2 cents to $15.50. On the options front, about 17,000 puts and 2,200 calls traded on the office supplies retailer, which is 5X the daily average for the name. In early action, an investor bought 10,000 Sep 15 puts on Staples for 15 cents per contract, according to a source on the exchange floor. Later, another 5,000 traded for 85 cents. Total volume at that strike was 15,084 against 441 in open interest. Another 1,500 Sep 14 puts also changed hands. The flow wasn’t entirely bearish, as the big block of Sep 15 puts was also tied to 400,000 shares of SPLS. Nevertheless, the opening of downside puts on the stock seems to reflect expectations for increasing volatility in SPLS in the months ahead.

Bearish trading was also seen in Southern Copper (SCCO), Franklin Resources (BEN), and SBA Communications (SBAC).

Index Recap

It was a rather quiet start to the trading week, with the S&P 500 Index (.SPX) trading in an 8.5-point range and finishing down .57 to 1,642.81. CBOE Volatility Index (.VIX), which tracks the expected or implied volatility priced into S&P 500 options, was up .30 to 15.44. Meanwhile, 480,000 calls and 574,000 puts traded on the SPX, VIX and other cash indexes, which is well below the average daily volume of 1.65 million contracts seen in the past month, according to Trade Alert data. Many macro players are possibly sidelined ahead of this week’s busy economic calendar, which doesn’t really pick up until Thursday, and ahead of the Fed’s meeting next week.

Analyzing the ETF Market

Dow Jones Real Estate Fund (IYR) drops 60 cents to $67.95 while in late-day action on Monday, an investor apparently sold 8,000 June 70 puts on the ETF at $2.23 and bought 8,000 July 67 puts for $1.43. The IYR June 67 – July 70 put spread, for 80 cents, traded 20900X on the day and appears to be rolling activity. There are more than 53,000 contracts of open interest in the June 70 puts and the contact is now$2.05 in-the-money, expiring in 11 days. At the same time, the activity in the out-of-the-money July 67 puts is opening (volume exceeds open interest). IYR, which holds a basket of REITs, is down 10 percent since May 21. Today’s position adjustment (i.e. buying of Jul 67 puts to open) seems to be expressing concerns about additional losses in the weeks ahead.