Choppy Waters

Cusick’s Corner
Market action remains mixed late-Wednesday, as investors digest a barrage of quarterly earnings reports. The only economic stat of the day showed New Home Sales improving to an annual rate of 497,000 for June, which was up from 459,000 the month before and better than the 483,000 that was expected. Meanwhile, Apple (AAPL) is a bright spot, gaining almost $23, or 5.4 percent, to $441.60 in the wake of its earnings report. Delta (DAL), Ford (F), and VMWare (VMW) are also up on profit results. Seagate Tech (STX), Broadcom (BRCM), as well as Dow components AT&T (T) and Caterpillar (CAT), are among the names seeing post earnings-weakness. Elsewhere, European markets finished mostly higher and trading was mixed across Asia. Crude oil shed $2 to $105.23 and gold lost $16 to $1319. With 15 minutes left to trade, the Dow is down 42 points and the NASDAQ is up 1.35 points.

Today’s Bullish Trade

Gamestop (GME) sees relative strength and options on the stock are busy today on reports the company is to begin selling Google Nexus 7 tablets. Shares hit a morning high of $44.72 on the headline and were recently up 84 cents, or 2 percent, to $43.26. GME is now up 72.5 percent year-to-date. In options action, 8,350 calls and 3,310 puts traded in the name. August 45 calls, which are now 4 percent out-of-the-money and expiring in three-and-a-half weeks, are the most active in the name. 4,770 traded. August 44 puts, January 55 calls, and September 45 calls are the next most actively traded. Focus will soon turn to Gamestop’s earnings. The company is expected to report mid-August and probably inside the August expiration.

Bullish trading was also seen in Masco (MAS), Qualcomm (QCOM), and Alexion Pharmaceuticals (ALXN).

Today’s Bearish Trade

Potash (POT), an agricultural fertilizer company, is off 21 cents to $37.89 and options on the stock are busy today ahead of earnings. The company is due to report earnings before the market opens Thursday. About 20,000 puts and 10,000 calls traded on the stock so far. The top trade is a 6,550-contract block of Sep 37 puts for $1.09 per contract when the market was $1.08 to $1.09. Volume at that strike is now 8,445 contracts against 3,214 in open interest. August 38 puts are the second most active in the name. 3,228 contracts changed hands. The stock is down 13.3 percent since mid-May and some investors are possibly buying protective puts on POT for fear of further losses when the company releases its profit report.

Bearish trading was also seen in Sandisk (SNDK), Chimera Investments (CIM), and Crocs (CROX).

Index Recap

We’ve seen very light volume in the index market throughout the week and the trend persists Wednesday. Not only are the summer doldrums setting in, but much of the investor focus has now shifted to the barrage of earnings reports that are peppering the financial headlines in recent days. On the options front, a total of 322,000 calls and 429,000 puts have traded on the S&P 500 Index (SPX), CBOE Volatility Index (VIX), and other cash index products, which is only about half the recent daily average volume, according to Trade Alert data. However, while volumes are light, volatility is picking up a bit. The S&P 500 has traded in a 16-point range and is down 8 points. CBOE Volatility Index, or VIX, is up .76 to 13.42. VIX August 13 put is the most actively traded index contract of the day. 22,735 contracts changed hands. Nov and Sep 30 calls on the index are the next most actives.

Analyzing the ETF Market

SPDR Metals and Mining ETF (XME) sees a second day of increased options activity. As noted in yesterday’s report, an investor was buying December 33 puts on XME for $1.10 and selling December 42 calls at 59 cents, 22000X on Tuesday. Shares are down $1.44 to $35.57 today and the top trade on the ETF is a 28300-contract block of December 43 calls for 39 cents per contract. The same investor also sold 450,000 shares of XME and possibly initiated a stock replacement strategy. That is, they were long shares of the exchange-traded fund and are liquidating the position. Meanwhile, they are opening a new position in the December 43 calls to maintain bullish exposure in the metals and mining sector. 30,000 Dec 43 calls now traded on XME against 18,024 in open interest.