Cusick’s Corner: Longer-Term Yields Rising – Midday Update 8.13.13

Stock market averages slipped following an in-line report on Retail Sales Tuesday. The data, released one hour before the opening bell, showed sales increasing by .2 percent in July, which matched economist estimates of .2 percent. Stock index futures ticked lower prior to the opening bell on the data and despite gains in overseas markets. Japan rose 2.7 percent overnight and stocks were broadly higher across the Eurozone as well. Crude oil slipped a nickel to $106 and gold gave back $8 to $1326. Meanwhile, Treasury Bonds are lower and iShares Long-term Bond Fund (TLT) is falling to new 52-week lows, which also means longer-term yields are rising. The yield on the ten-year Treasury is back above 2.7 percent and near 2013 highs, which might be one reason for the weakness in the equity market heading into midday Tuesday. However, the decline is orderly and the Dow is down just 30 points. The NASDAQ lost 5. Volatility Index (.VIX) is flat at 12.81. Overall options volumes are running at about the normal levels, with 2.9 million calls and 2.2 million puts traded across the exchanges through 11:00am ET.

Bullish Flow
Microsoft (MSFT) drops 38 cents, or 1.8 percent, to $32.27 and is the biggest loser in the Dow Jones Industrial Average, while also weighing on the NASDAQ, through midday Tuesday. On the options front, an interesting spread trades on the software giant after an investor apparently sold 10,000 Jan 28 puts on the stock at 51 cents, bought 10,000 January 33 calls for $1.48, and sold 10,000 Jan 36 calls at 55 cents. In other words, Jan 28 puts were sold on MSFT to buy Jan 33 – 36 call spreads, 42 cents was paid, 10000X. If opening, the positioning seems to be expressing a bullish view on the stock through January 2014. While they’re stating that they are willing buyers of the stock for $28 per share (selling Jan 28 puts), buying Jan 33 – 36 call spread will offer a max payout if shares move to $36 or more. MSFT has a 52-week high of $36.43 dating back to 7/16, but then shares fell to $31.4 a few days later after earnings were reported.

RenRen (RENN) adds 33 cents, or 8.3 percent, to $4.30 in active trading of 8.3 million shares on reports Baidu might be interested in the company’s Nuomi biz segment. On the options front, 7,400 calls and 360 puts traded in RENN. October 4.5 calls on the stock are 20 cents, or 4.7 percent out-of-the-money, and are the most actives in RENN today. 1,685 traded. Aug 4 and Oct 5 calls are also seeing interest and 30-day implied volatility in the options on the Chinese Internet company moved up 12 percent to 106 – new 52-week highs.

Bearish Flow
The airline sector hit a pocket of turbulence Tuesday morning. US Airways (LCC) is off $1.64, or 8.7 percent, to $17.16 in heavy trading of 44.5 million shares on reports the Justice Department might challenge the merger with AMR. The combination of the two airlines represented further consolidation in a wave of mergers within industry is recent years, which has helped airlines increase fees and charge higher fares. Therefore, today’s ant-trust news triggered volatility across the sector. In options action, 62,000 puts and 49,000 calls traded in LCC. August 17 puts and January 15 puts are the most actives and 30-day implied volatility in the options on the stock is surging 56 percent to 49.

Jetblue (JBLU) drops 12 cents to $6.24 on increasing volume of 4.5 million shares. About 5,800 puts and 2,680 calls traded on the stock. Sep 7 and 8 puts are the most actives. Delta Airlines (DAL), UAL, and Southwest Airlines (LUV) are all seeing increased options activity as well. AMEX Airline Index (XAL), a gauge of leading companies in the industry, dropped 3.5 percent.

Unusual Volume
Blackberry (BBRY) options volume is running 4X the (22-day) average, with 321,000 contracts traded and call volume accounting for 69 percent of the volume.

Cisco (CSCO) options volume is 2X, the average daily, with 195,000 contracts traded and call option volume representing 64 percent of the activity.

SINA options volume is running 2.5X the average daily, with 58,000 contracts traded and call volume accounting for 73 percent of the activity.

Increasing options activity is also being seen in Interoil (IOC), Thermo Fisher (TMO), and Twenty First Century Fox (FOXA).

Implied Volatility Mover
Implied volatility in the options on Weatherford (WFT) is moving higher amid active trading in the call options on the oil driller. The stock is up 41 cents, or 2.8 percent, to $14.89 and new 52-week highs in active trading of 5.2 million shares. Meanwhile, 14,000 calls and 1,100 puts traded on WFT so far today. Sep 16 calls are the most active. 5,240 contracts changed hands. Aug and Sep 15 calls are the next most actives and 30-day implied volatility in the options on the stock is up 6.5 percent to 30.5, but no immediate headlines to explain the heightened activity in WFT today.