Cusick's Corner

This is a big move, really exciting but the stage we are at is a critical one. With the S&Ps (the index that I follow the most) backing off a critical resistance level, 1150, there needs to be conviction of price and volume if there are going to be more non-institutional participants. So with this pullback into the Midday, the dip bid appears to continue to support, but not with conviction. It is healthy to have a chop right here but the market is chewing on the latest catalyst -- Central banks free liquidity and now may not like the taste of this infusion since liquidity may not be the issue but solvency. See you After Hours.

Market Recap

Stocks are mixed in quiet market action following big gains recorded the day before. Economic data was in focus early-Thursday after the Labor Department reported that Jobless Claims increased by 6,000 to 402,000 last week, which was 12,000 more than expected. The disappointing reading holds more sway than usual because it comes ahead of key monthly jobs data Friday. However, a separate report released later showed Construction Spending up .8 percent in October and .5 percent more-than-expected. The latest ISM Index of manufacturing activity was up to 5.27 in November, from 50.8 last month and also better than the 51.0 that economists had predicted. Meanwhile, Hong Kong’s Hang Seng surged 5.6 percent overnight and trading was quiet across Europe after the big gains the day before. Similarly, the Dow Jones Industrial Average, which rallied nearly 500 points Wednesday, has given back 57 points. The tech-heavy NASDAQ is fractionally higher. CBOE Volatility Index (VIX) is flat at 27.80. Overall options volume is running about typical levels, with 4.3 million calls and 4.1 million puts traded through 12:45pm ET.

This Morning's Bullish Trading

Ford Motor (F) loses four cents to $10.56 and calls on the automaker are active today after the company reported a 13 percent increase in November auto and truck sales, which was slightly better than the 10 percent that was expected. Shares, which hit a morning high of $10.81, drifted lower on the news. Meanwhile, options volume in Ford today includes 87,000 calls and 27,000 puts. December $11 calls, which are now 4.2 percent out-of-the-money and expiring in 15 days, are the most actives. 29,000 traded. December 10 calls are busy as well, with another 17,900 contracts changing hands so far. Some players might have been buying short-term calls on the stock on hopes the monthly sales results would lift shares in days ahead. However, Ford had rallied 10.9 percent in the week leading up to the report. Some of the good news might have already been factored into the stock price – setting up a case of “buy the rumor, sell the news”.

JetBlue (JBLU) adds 29 cents to $4.42 and overall options volume on the airliner is running 5.5X the daily average. 7,030 calls and 765 puts traded on the stock so far. Morning trades in JetBlue include a 3,600-contract block of March 6 calls traded at 15 cents on the American Stock Exchange. The block was bought and appears to be a new position, as 5,262 have now traded and open interest is 3,742. Shares have rallied 30 percent over the past five days and are up today after JP Morgan raised their outlook on a number of airlines, including JBLU. Some players might be buying OTM calls on the stock on hopes the impressive rally can continue through March 2012.

This Morning's Bearish Trading

Approach Resources (AREX), a Fort Worth, TX oil and gas company, is down 32 cents to $30.96 and recent options trades on the stock include a Jan 25 – 35 bearish risk-reversal at 20 cents, 2574X on AMEX. In this trade, the investor apparently bought 2574 January 25 puts for $1.00 and sold 2574 January 35 calls at $1.20. With shares almost midway between the two strikes, this looks like an opening position on concerns that shares might fall between now and the January 2012 expiration, which is in 50 days. A shareholder might have initiated the position to hedge or “collar” the stock. AREX has performed well over the past two months and has more than doubled in value since October 3.

SPDR Financial Fund (XLF), which rallied more than 6 percent yesterday, has given back 11 cents to $12.70. Meanwhile, a flurry of activity surfaced in March puts on the fund in morning trading Thursday. March $12 puts have traded 132,769 contracts. Volume in March $11 puts is 88,207. A lot of the volume traded on the International Securities Exchange, where data is consistent with spread trading – i.e. buying the March 12s and selling the March 11s. The spreads appear to be bearish short-term plays with a max potential profit if shares fall to $11 or less through the March expiration, which represents a 13.4 percent decline from current levels. XLF recorded a 52-week low of $11.28 on October 3.

Magma Design International (LAVA) jumped $1.43 to $7.15 after Synopsus unveiled plans to buy the software maker for $507 million. Options action is LAVA is flowing today as well, with 5,600 puts and 2,825 calls traded on the stock so far. July 5 puts, which are now 30 percent out-of-the-money, are the most actives. 4,849 traded, mostly on the 5-cent bid. Some players might be selling the puts on the view that shares will hold above $5 on the heels of the takeover announcement. Consequently, implied volatility in the options on the stock has plummeted 58 percent to 35.

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