Market Bounce 08-23-2011

Cusick's Corner
The market has bounced and with Financials, XLF, on board this rally, there is some strength to the move today. The market needs Financials to be in the green if we want to finish into the close solidly in the green. The trouble is (and we saw this on the open) this sector has had a lot of mixed headlines and rumors, so I am watching these rallies with suspect. We have seen this action in Gold, GLD, which has pulled off the highs, $1917.70 in Dec Gold Futures. While the scenario that I spoke about yesterday has transpired over hours rather than days and weeks, just makes the point that these markets are moving and we need to be nimble and focused on strategy selection and position sizing. I get a little more conservative when the environment is as choppy as it has been and continues to be. This does not mean that I run for the hills, just respect the market is all I am saying. I will be watching Silver, SIL, and Finance into the close, looking for any breakouts in either sector which could be a positive into the After Hours.

Stock market averages are rallying on a relatively slow news day. The table was set for early strength on Wall Street after key markets across Asia moved higher on better-than-expected economic data. Hong Kong's Hang Seng rose 2 percent and Japan's Nikkei gained 1.2 percent. Trading was orderly across the Eurozone and the Dow Jones Industrial Average posted modest gains at the open as well. New Home Sales came into focus at 9:00 central time and showed a decline to 298K in July, which was down from 300K in June and also below economist estimates of 310K. The worse-than-expected data had little market impact. Instead, the Dow Jones Industrial Average was able to gather some upside momentum in late-morning trading and was up 228 points at midday. The tech-heavy NASDAQ gained 70 points. There might be some optimism building that Fed Chairman Ben Bernanke will have positive things to say at a meeting among central bankers in Jackson Hole, WY later this week. The Fed Head presented his QE2 strategy at the same meeting last year. Fear seems to be subsiding a bit. CBOE Volatility Index (.VIX) dropped 4 points to 38.44. Overall options volume is light for a second day, with 5.0 million calls and 5.1 million puts traded across the exchanges through 12:30pm ET.

Bullish Flow
ARM Holdings (ARMH), a British semiconductor company, is trading up $1.73 to $25.77 after The Daily Mail published a piece suggesting Apple might be interested in acquiring the company. Options volume in ARMH includes 14,000 calls and 2,050 puts through midday. Typical volume is about 5,000. October 28 calls, which are 9.1 percent out-of-the-money, are the most actives. 2,610 traded. Jan 30, Oct 27, Sep 25, and Jan 33 calls are seeing interest as well, as speculators are probably taking positions on hopes for some sort of announcement. However, at least one brokerage firm was out with a note today saying they're skeptical about speculation. It seems unsubstantiated so far.

Yahoo (YHOO) adds 27 cents to $13.11 and a noteworthy options trade in the Internet search giant today is an apparent ratio risk-reversal. In this bullish combo, the investor bought 15,000 January 17.5 calls at 48 cents and helped finance the purchase by selling 10,000 January $11 puts at 78 cents. The position seems to be an aggressive play on Yahoo, as 17.5 calls on YHOO are 33.5 percent out-of-the-money. Moreover, if shares fall below $11 and the position is held through January expiration, the strategist will be on the hook to buy the stock at $11 per share.

Bearish Flow
Bank of America (BAC) shares are down 15 cents to $6.17 and one of only two Dow stocks trading lower through midday. Disney (DIS) is the other. The top options trade on the bank today is a spread, in which the strategist bought 20,000 September 6 puts at 74 cents and sold 20,000 September 5 puts at 43 cents. In other words, they initiated a Sep 6 - 5 put spread at 31 cents, 20000X. The bearish play comes after a four-day 16.9 percent losing skid in BAC shares and seems to reflect concerns about additional losses through the September expiration, which is in 24 days.

An impressive spread trades in the Powershares Bullish Dollar Fund (UUP) today. Shares, which track the dollar against the euro, yen, and other major currencies, are down 8 cents to $20.99. Meanwhile, in options action, one investor apparently bought 91,000 December 20 puts on the ETF at 17 cents and sold 91,000 December 19 puts at 6 cents. In other words, they initiated a Dec 19 - 20 put spread at 11 cents. It's a bearish play on the buck, as it makes its best profits if UUP shares fall to $19 or less through the December expiration.

Unusual Volume
KB Homes (KBH) options volume is running 13.5X the (22-day) average, with 74,000 contracts traded and put activity accounting for 98 percent of the volume.

NetApp (NTAP) options volume is 2X the average daily, with 61,000 contracts traded and call volume representing 52 percent of the activity.
SPDR Technology ETF (XLK) options volume is running 2X the average daily, with 49,000 contracts traded and put volume representing 96 percent of the total volume.

Increasing options activity is also being seen in Yamana Gold (AUY), Temple Inland (TIN), and Hess (HES).

Implied Volatility Mover
Temple Inland (TIN) implied volatility is ripping higher on reports the company is being sued for loading up its Guaranty Financial unit with bad securities, which caused its collapse. Shares are down $4.62 to $20.20 on the news. Meanwhile, 31,000 calls and 16,000 puts traded in TIN today. September 20 puts and 25 calls are the most actives and implied volatility in TIN options surged 56 percent to 108.