Will AAPL Succumb to Gravity? 07-19-2011

Cusick's Corner
GS reports bad numbers, the market goes up -- that is strong. Finance continues to lag the market, but one thing that traders and investors cannot ignore is that when rates do move, money will cycle into this sector. At this stage the conviction is in Tech and traders are waiting for Tech big wigs -- AAPL reports tonight. I did blog to watch Housing, XHB, the data was much better than expected and the XHB sector has held support of $17 in what was looking like a bearish set up. While by no means is this sector out of the woods, today's action has this particular market ready to challenge upside resistance of $18.50 (the right shoulder in XHB for you technicians), potentially negating the recent slide. See you After Hours.

Stocks market averages are holding gains with help from earnings and economic data midday. IBM shares rallied 4.2 percent and led the Dow Jones Industrial Average to higher ground after the computer maker reported earnings that beat expectations and also said new customers in its services business helped drive stronger profits. Dow component Coca Cola (KO) is also up on earnings. However, Goldman Sachs (GS), Bank of America (BAC) and Johnson and Johnson (JNJ) are suffering post-earnings losses. On the economic front, a report on Housing Starts showed some unexpected improvement. Builders broke ground at an annual rate of 629K homes in June, up from 549K the month before and much better than the 570K that was expected. Gains across Eurozone equity markets and higher commodities prices helped set a positive tone on Wall Street as well. Crude oil gained $1.78 to $98.03 a barrel and gold edged up $1 to $1,063.50. Meanwhile, the Dow Jones Industrial Average has added 116 points and the tech-heavy NASDAQ gained 41.6. CBOE Volatility Index (.VIX) is down .95 to 20. Trading in the options market remains active, with 4.9 million calls and 3.6 million puts traded through 12:30pm ET.

Bullish Flow
Chevron (CVX) shares added 71 cent to $106.94 and is one of 22 Dow stocks moving higher midday Tuesday. Shares of many of the major oil companies are up with crude today, which gained $1.75 to $98 per barrel. In CVX options action, volume is 18,000 calls and 2,940 puts. The top trade is part of a spread, in which the investor apparently bought 5,000 September 115 calls at 82 cents and sold 5,000 September 120 calls at 19 cents. In other words, they initiated a Sep 115 - 120 call spread for a 63-cent net debit. The bullish spread has traded multiple times today and volume in both contracts is more than 7,100. The spread offers a max pay-off if shares rally to $120 or beyond through the September expiration, which equates into a 12.2 percent rally above current prices.

10,000 calls and 1,500 puts traded in EMC today. Shares of the data storage device maker are up 68 cents to $37.32 after strong earnings from IBM helped fuel hopes for a rebound in IT spending. In EMC options action, 12,000 calls and 4,000 puts traded in the name so far. The top trade is a 4,050-contract block of August 28 calls at the 58-cent asking price. 6,162 now traded. The Aug 28 call on EMC is now 1.8 percent out-of-the-money and expiring in 31 days. Some investors might be taking positions on hopes earnings will lift EMC shares beyond the $38 strike before the contract expires. The company is due to release results Wednesday morning.

Bearish Flow
Puts on Eastman Kodak (EK) are heavily traded for a second day. As noted in yesterday's closing wrap, 147,000 puts and 36,000 calls traded in EK yesterday. The heavy trading continues today. Shares are again touching new 52-week lows and now down 18 cents to $2.33. Options volume is 18,000 calls and 81,000 puts in Kodak through midday. The top trade is an 8,756-contract block of Sep 2 puts at 20 cents, which might be a buyer bracing for additional losses and a move below $2 through the September expiration. January 3.5, January 3, and January 4 puts are seeing brisk trading as well. Implied volatility in EK options jumped another 29 percent to 80.5.

Whirlpool (WHR) loses 63 cents to $74.97 and is seeing relative weakness today ahead of earnings. The company releases its results Thursday morning. 8,150 puts and 1,710 calls traded in the appliance maker ahead of the news. August 72.5 puts, which are 3.3 percent out-of-the-money, are the most actives. 2,680 traded. August 67.5 and August 70 puts are busy as well. Weakness in the stock and heavy put activity might reflect some underlying concerns about the profit report. Some shareholders might be taking protective positions ahead of the news.

Unusual Volume
Bank of America (BAC) options volume is running 2X the (22-day) average, with 713,000 contracts traded and call activity accounting for 69 percent of the volume.

iShares Long-term Bond Fund (TLT) options volume is 3.5X the average daily, with 108,000 contracts traded and call volume representing 97 percent of the activity.

IBM options volume is running 2.5X the average daily, with 95,000 contracts traded and call volume representing 60 percent of the total volume.

Increasing options activity is also being seen in Allstate (ALL), Coca Cola (KO), and Harley Davidson (HOG).

Implied Volatility Mover
Bank of America (BAC) options are very heavily traded and implied volatility is easing a bit after the bank reported quarter earnings Tuesday morning. Investors don't seemed too pleased with the results, as shares are setting new 52-week lows and down 30 cents to $9.42. Options volume in the bank is impressive as well. 548,000 calls and 230,000 puts so far. Typical volume through midday is about 200,000 contracts. Meanwhile, implied volatility has eased about 4 percent to 39, but remains well above this week's lows of 23 set in late-April.