Up, Up But Not Away?

Cusick's Corner
Volume was too light on the morning's leg up for the market to truly take off. There is no one headline moving the market. The PPI, which measures price changes in goods, rose 0.2 percent in July which is larger than consensus estimates of no change. Banks (BKX) got hit yesterday, trading slightly higher today while the Tech (XLK) sector continues to be weak today. If the market loses leadership in those two sectors then the market could hit resistance. The Swiss Franc (SFU11) is still red hot especially with the mixed action in the EU other concerns in France. See you After Hours.

Stock market averages opened higher, but the morning rally ran out of gas and trading has turned cautious through midday. News is mixed. While trading was steady across the Eurozone and the euro edged up .4 percent on the buck, the focus in the US was on earnings. Dell Computer (DELL) shares are off 9.3 percent and weighing on the tech sector after the computer maker lowered its profit forecast. However, the day after Home Depot (HD) and Walmart (WMT) rallied around earnings news, retailers Staples (SPLS) and Target (TRT) are up on upbeat profits today. Crude oil gained 62 cents to $87.47 on the heels of weekly inventory data and gold continues to push higher, up $3.4 to $1786.80 an ounce. On the economic front, the Labor Department reported that its Producer Price Index [PPI] rose .2 percent. Economists were looking for no change in the PPI. The hotter-than-expected PPI might have eased some recent anxiety about slowing economic growth and falling prices (deflation) at the wholesale level. Still, after an initial run higher, the Dow Jones Industrial Average has erased its gains and is down 7 points. Tech-heavy NASDAQ lost 14. Trading is orderly and the CBOE volatility Index (.VIX) is down .37 to 32.48. Options volume is somewhat slow again today, with about 4.8 million calls and 5.7 million puts traded across the exchanges through 12:30pm ET.

Bullish Flow
Eastman Kodak (EK) shares jumped 45 cents to $2.59 and options action is heating up in the name after Bloomberg had a favorable write-up about the company. The report noted that Kodak has valuable patents that make it a viable merger and acquisition candidate. Shares reacted positively to the commentary and the top options trade in Kodak today is a 10,000-contract block of Jan 2 puts, sold at 40 cents each. 15,000 total. It's not necessarily a bullish play, but seems to reflect expectations that shares will hold above $2 through the January 2012 expiration. If not, the strategist could face assignment and be asked to buy the stock at $2 each.

Office Depot (ODP) hit a morning high of $2.85 after UBS upgraded the stock to Neutral from Sell. The firm says that, now that shares have dipped below $3, there is equal chance of a move higher as lower. However, after an initial push higher, shares have erased the gains and are down 7 cents to $2.62. Early options action in the office supplies retailer included a buyer of 10,000 January 3 calls at 55 cents per contract. The Jan 3 call on ODP is now 14.5 percent OTM and, if bought at 55 cents, has a breakeven at $3.55 per share, which represents a 35.5 percent surge above current levels.

Bearish Flow
Powershares QQQ (QQQ), which is the exchange-traded fund that holds the tech-heavy NASDAQ 100 names, is trading down .45 to $53.45 after Dell Computer shares fell more than 8 percent on disappointing earnings news. Tech stocks are lagging and one strategist seems to be bracing for additional weakness in the sector. They sold 30,000 September 58 calls on the Qs at 26 cents and bought 30,000 September 51 puts at 79 cents. A net debit of 53 cents was paid for the bearish 51 - 58 risk-reversal and the options combo might have been initiated as a hedge. That is, they bought the risk-reversal to protect or "collar" a big position in QQQ shares.

Wellpoint Health Networks (WLP) loses 55 cents to $61.50 and an interesting three way spread trades in the managed healthcare provider. In this play, the strategist sold 2,100 December 52.5 - 70 strangles on WLP at $3.40 and bought 1,400 December 62.5 puts at $5.10. Stated differently, December 70 calls were sold to buy a December 62.5 - 52.5 (3X2) put ratio spread. This three-way offers its best payoff if shares fall to $52.5 through the December expiration, which represents a 14.6 percent decline over the next 121 days.

Unusual Volume
DELL options volume is running 4X the (22-day) average, with 120,000 contracts traded and call activity accounting for 57 percent of the volume.

AT&T (T) options volume is 2.5X the average daily, with 111,000 contracts traded and call volume representing 61 percent of the activity.

Target (TGT) options volume is running 2.5X the average daily, with 54,000 contracts traded and call volume representing 71 percent of the total volume.

Increasing options activity is also being seen in Abercombie (ANF), Ivanhoe Mines (IVN), and SPDR Utility ETF (XLU).

Implied Volatility Mover
Barnes & Noble (BKS) is seeing relative weakness and higher implied volatility today. Shares of the bookseller lost $1.51 to $13.01. Interestingly, options order flow seems somewhat bullish despite the falling share price, with 6,350 calls and 2,450 puts traded in the name. Implied volatility in BKS options is up 10.5 percent and elevated at 86, as some investors seem to be expecting the volatility to continue in the days/weeks ahead. The company is due to release earnings on the morning of Aug 30.