Cusick's Corner

The buyers have been picking up these dips over the past few weeks and with the Midday pullback, S&Ps at 1317, I would like to see that action continue. I will be monitoring Dollar strength and Euro weakness, if that trend continues into the After Hours, the weak handed bulls may be pressured out and the reliable dip bid may pull in some reins. This would be somewhat understandable, the market has run up and traders might have a hard time at these levels to chase. Also keep an eye on the offensive sectors, XLE, XLK, and XLF; they are under some pressure which could also potentially dampen the upside. See you After Hours.

Market Recap

Stock market averages moved higher along with European equity markets at the open, but trading has turned mixed midday. Eurozone equity markets were up before the opening bell on Wall Street amid hopes for Greece and diminishing fears about the Debt Crisis. Germany’s DAX helped pace the advance with a gain of 1.4 percent. In the US, some of the focus then shifted to economic data after a report on Durable Goods surprised to upside after increasing 3 percent in December. Economists were expecting an increase of 2 percent. Separate data showed Jobless Claims up 21,000 to 377K in the third week of January, which was in-line with expectations. A third report released later was the List of Leading Economic Indicators for December, which was up .4 percent and .3 percent less than expected. On the earnings front, Caterpillar (CAT) is helping the Dow Jones Industrial Average. CAT is up 2.8 percent after posting a quarterly profit of $2.32 per share, which beat analyst estimates by 55 cents. Netflix, JetBlue and Nokia are also up on profit results. Sandisk and AT&T are seeing post-earnings weakness. Consequently, trading has turned mixed once again and, while the Dow is clinging to 20 point gains, the NASDAQ is off 6.3 points. CBOE Volatility Index (VIX) edged up .42 to 18.73. Overall options trading remains active, with 5.1 million calls and 4.6 million puts changing hands by 12:30pm ET Tuesday.

This Morning's Bullish Trading

United Rentals (URI) is touching new 52-week highs today and was recently up $3.16 to $37.93 after the company reported a quarterly profit of 82 cents per share, which beat Street estimates by 24 cents. Revenues also topped expectations. The stock is up on volume of 4.3 million shares, which is more than 3X the typical volume for the Greenwich, CT rental and leasing services company. Options volume is running 5X the daily average. 10,000 calls and 1,650 puts traded in the name so far. March 42 calls, which are now 10.7 percent out-of-the-money and expiring in 50 days, are the most actives. 2,020 traded, as some investors might be taking positions on hopes the stock’s rally will continue in the weeks ahead. URI is up 128 percent since August.

Newfield Exploration (NFX), a Woodlands, TX oil and gas company, loses $1.25 to $40.03 and options volume on the stock is running 3X the daily average. Earlier today a bullish combination traded, an investor sold 7,000 March 35 puts on the stock at 55 cents per contract and bought half as many (3500 contracts) of March 45 calls for 75 cents each. This bullish 2X1 ratio risk-reversal looks opening and seems to be a view that shares will hold these levels, or perhaps rally beyond $45, through the March expiration. The initiator is a willing buyer of the stock at $35 per share through the March expiration and is selling the $35 puts. They are also seeking exposure to the upside and are buying $45 calls.

This Morning's Bearish Trading

Options action is picking up in Ford (F) ahead of earnings. The automaker is due to release its results Friday morning. 85,000 calls and 49,000 puts traded on the stock so far. The top trades printed early in the session after one investor bought 10,000 March 12 puts on Ford for 26 cents and sold 10,000 March 14 calls at 18 cents. This bearish risk-reversal, for an 8-cent debit, is possibly a hedge. That is, a shareholder is selling puts to buy calls, which would create a “collar” that hedges the stock from a substantial post-earnings move lower. The stock can sometimes see a volatile reaction to earnings news. Ford shares slipped 13.4 percent on 1/28/2011 when results were released one year ago.

Radian (RDN) sees a second day of bearish trading. In yesterday’s midday report, we noted increasing volume in January 2 puts on the Philadelphia, PA credit-related insurance company. Shares are off 18 cents to $2.70 today and the action continues. 1,765 January 2 puts traded on the stock and, with 95 percent of the flow trading at the offer or asking price, it appears that put buyers are adding to positions opened yesterday. Open interest in the contract increased by 4,747 since yesterday and, at 7,500, is now the largest position in the name. Feb 2.5 and 3 puts on RDN are seeing interest as well and implied volatility in the options on the stock is up another 3 percent to 94, as some players seem concerned that the stock might extend its losing streak in the weeks/months ahead. RDN is on a four-day 13 percent losing skid so far this week.

Implied Volatility Mover

Implied volatility in Starbuck’s (SBUX) is moving up ahead of earnings. The company is due to report today after the closing bell. Trading is brisk ahead of the news. Share volume is 5.3 million and about double the normal. Meanwhile, 17,000 calls and 22,000 puts traded in the name, which is 3X the daily average. Players are taking positions in February 44 puts, 48 puts, 48 calls and 50 calls ahead of the results, and implied volatility in SBUX options is moving up 10.5 percent to 30.

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