Watch Ex-Dividends 07-29-2011

Cusick's Corner
I am going to change gears and not talk about the Debt debate but focus on the upcoming ex-dividend calendar. Those of you who are dividend traders, yield players (i.e. covered calls/call credit spreads), you need to stay on top of these dates. For the stock trader you need to know this date because you need to own the stock the day before the ex-date. For the credit strategist you need to be aware because if you write premium and the options you sold are expiring in the month that this stock goes ex-div and is an American-style option (these can be exercised at any time), you could be assigned. For the covered call trader this not such a big deal but the strategist who sold the call credit spread could have a surprise with a short stock position against an out-of-the-money long call. You have the ability to do same day substitution, cover the stock assignment, and you will always be able to contact a broker at optionsXpress to assist. We list all the stocks going ex-div next week in the Research Center. Have a great weekend.

Trading has turned mixed late Friday, but the underlying tone remains cautious ahead of the August 2 deadline to raise the nation's debt ceiling. The stage was set for morning weakness on Wall Street after the latest GDP report showed the economy growing at a 1.3 percent annual rate in the second quarter. Economists were looking for an increase of 1.7 percent. Stock market averages remained under water through a second round of mixed economic data released later. The Chicago PMI showed a decline to 58.8 in July, from 61 in June. Economists were expecting the gauge of manufacturing activity to fall to 58. Meanwhile, the University of Michigan consumer sentiment index saw a decline to 63.7 in late July, from 63.8 mid-month. Economists were expecting it to hold steady at 63.8. Stock market averages were under water on the data, but then saw a mid-morning lift after President Obama said the two parties are not miles apart regarding their competing budget plans. The rally didn't last and ran out of gas. Market averages were under water midday. From that point forward, trading has been choppy. With less than an hour to trade, the Dow Jones Industrial Average is down 55 points. The tech-heavy NASDAQ has managed a two-point gain.

Bullish
Capital One (COF) hit a morning low of $46.58, but has since battled back to positive territory and is up 37 cents to $48. Meanwhile, 12,000 calls and 5,720 puts traded in the name, which is more than double the average daily volume. Much of the focus is on August 50 calls. 9,760 traded and most of the volume has been trading either mid-market (between the bid and ask) or at the asking price. Existing open interest is 5,720 contracts. Some investors might be taking positions on hopes for a short-term rebound in the stock. COF has had a rough few weeks and, at today's morning lows, was down 11.6 percent since July 7. August 50 calls on the credit card company are 4.2 percent out-of-the-money and expire in three weeks.

Bullish trading was also seen in Forest Oil (FST), Legg Mason (LM), and Staples (SPLS).

Bearish
Cemex (CX) shares fell to new 52-week lows today, but have since rebounded and are trading up 28 cents to $7. Options volume is running 7X the average daily, with 21,000 puts and 5,600 calls traded on the Mexican cement company so far. One of the top trades of the day is a buyer of 5,000 January [2013] $5 puts at 78 cents per contract. The contract is 28.6 percent out-of-the-money and an investor might be taking this position on concerns about additional losses in CX through the second half of 2011 and in 2012. The contract expires in mid-January of 2013.

Bearish flow also surfaced in EMC, Finisar (FNSR), and TIVO.

Index Trading
CBOE Volatility Index (.VIX) has seen an impressive five-day rally this week. The market's "fear gauge" is up 1.65 to 25.39 and has gained 41.7 percent from a week ago. VIX is now at its best levels since March 18 and shortly after concerns about the Japanese quake and nuke disaster sent the index to 31.28 - its highs of the year. Meanwhile, options on the volatility index are very heavily traded today. 352,000 calls and 150,000 puts in the VIX trading pit so far. August 30 calls are the most actives. Volume is approaching 80,000. Another 66,340 August 25 calls changed hands. Some investors are probably taking out positions in VIX out-of-the-money calls on concerns about events in Washington over the weekend and a possible jump in market volatility Monday morning.

ETF Action
Proshares UltraShort Lehman 20-plus Year Bond Fund (TBT) is taking it on the chin today. TBT is a leveraged exchange-traded fund designed to move the inverse of the iShares Long-Term Bond Fund (TLT). The TLT fund, in turn, holds a basket of longer-term Treasurys and is rallying today on the heels of poor economic data. While TLT has added $1.90 to $97.92, TBT is down $1.35 to $31.39. Meanwhile, some investors appear to be anticipating a snapback in the UltraShort Fund. 100,000 calls and 40,000 puts traded in the TBT so far. Buying calls on the inverse fund is a bearish bet on bonds, as the call options will increase in value if bonds (TLT) fall and shares of the short fund (TBT) move higher.