S&P 500 and Dow Industrials Closed at Record Highs

Cusick’s Corner
Stock market averages rallied at the open and are building on the gains in afternoon action Thursday. Soothing comments from Ben Bernanke yesterday afternoon seemed to help set the tone for steady trading early in the day. The head of the Federal Reserve said that “highly accommodative policy for the foreseeable future is what is needed”. The comments followed the release of Fed minutes Wednesday afternoon and seemed to ease recent concerns that officials will begin to remove monetary stimulus in the second half of 2013. Equity markets overseas reacted to the benign commentary and moved mostly higher across Asia and Europe before the opening bell on Wall Street. On the economic front, the Labor Department said this morning that Jobless Claims increased by 16,000 to a two-month high of 360,000 last week. Economists were expecting 345,000. The market showed little reaction to the data. Elsewhere, crude oil is giving back $1.80 to $104.70, but gold gained $36 to $1282.5. With 45 minutes left to trade, the Dow Jones Industrial Average is now up 162 points. The NASDAQ added 53.

Deutsche Bank (DB), the German financial services giant, is up $1.05, or 2.5 percent, to $43.83 after Germany’s DAX led European markets higher, gaining 1.1 percent. In the US, DB shares are seeing strength as well and options volume on the stock is lopsided. About 12,000 calls and 1,400 puts traded on the bank so far, which is 3.5X the daily average volume. August 47 calls are the most actives. 10,390 contracts traded, including a 7840-lot this morning for 75 cents per contract when the market was 65 to 80 cents. 10,390 August 47 calls now traded on Deutsche Bank against 312 in open interest, as some investors seem to be looking for the stock to continue its recent rebound over the next 5 weeks. The stock is up today, but still down .9 percent year-to-date and well off the 2013 highs of $53.12 seen in February.

Bullish trading was also seen in Tibco Software (TIBX), Annaly Capital (NLY), and Advanced Micro Devices (AMD).

Groupon (GRPN) saw a flurry of activity in afternoon trading Thursday. Shares dropped 22 cents, or 2.5 percent, to $8.58 and total options volume on the stock is 12,000 calls and 66,000 puts. 85 percent of the volume is in the July options that expire next week and the top trade is a 15,000-contract block of Jul 8 puts for 13 cents per contract when the market was 11 to 13 cents. 32,565 July 8 puts now traded on the stock. Another 22,128 July 8.5 and 4,450 July 9 puts also traded in Groupon. It’s not clear what is motivating the surge in activity in July puts on the stock. Some investors might be buying some short-term protective puts on GRPN after a 77 percent year-to-date rally in the stock.

Bearish trading was also seen in Expedia (EXPE), Digital Realty Trust (DLR), and Pitney Bowe’s (PBI).

Index Trading
CBOE Volatility Index (.VIX) continues its recent slide. The index, which tracks the expected or implied volatility reflected in current S&P 500 Index (.SPX) options premiums, is down .24 to 13.97 and below 14 for the first time since late-May after the S&P 500 rallied 21.75 points to 1,674.37. The S&P is now on pace to close above its May 21 record high of 1,669.16. In options action, trading has been active today, with 769,000 calls and 1 million puts traded on VIX, SPX and other cash indexes, according to Trade Alert data. VIX July 14 and 15 puts are the most actively traded index contracts. Some investors are possibly liquidating positions after a 12-day 30.5 percent drop in the index. July options on VIX expire next Wednesday.

ETF Action
iShares US Home Construction Fund (ITB) sees relative strength and increased activity on an upbeat day for the homebuilding names Thursday. ITB is up $1.17, or 5.3 percent, to $23.57 after lagging the market badly in recent weeks. Shares are up today, but down 10.1 percent from late-May highs. Options volume on the ETF is about 24,000 calls and 2,500 puts so far, or 2.5X the daily average. July 23 calls are the most actives and some investors might be liquidating positions. The contract is now 57 cents in-the-money and expiring in a week. 13,850 contracts traded against 18,639 in open interest. August 25 calls, August 22 puts, and August 22 calls are the next most active in ITB options today.