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Mid Day Options Market Commentary for March 5, 2013options Xpress - Tuesday, March 5th, 2013

Preserve your cash in a volatile market.

Cusick's Corner

Timing the weather can be like trying to time the market. The snow is falling now, I have a house full of kids, or my wife does, and the market is running to the upside. I mentioned last night that while doom was in the air, the trend was holding. You cannot fight it, just trade smaller and spread the risk in the sectors that you trade. I will be looking at the Energies, XLE; they have been lagging this move to the upside. I will also look at the Financials, XLF, I want to see if dips are being picked up into the Midday. See you After Hours.

Market Recap

Stock market averages are holding solid gains with help from economic news Tuesday. A report released this morning showed the ISM Services Index up to 56 for February, from 55.2 last month and better than the 55.4 that was expected. Stock market averages had already recorded gains ahead of the data and seemed to find support from action in overseas markets. Most of Asia's equity markets finished higher and key stock benchmarks across the Eurozone are up more than 2 percent – 4 ½ year highs. Crude oil prices are ticked 25 cents higher to $90.37 and gold gained $1.5 to $1574. On Wall Street, the Dow Jones Industrial Average is up 146 points and moving to record highs. The NASDAQ gained 47 points. CBOE Volatility Index (.VIX) is down .71 to 13.3 Overall trading is much more active than yesterday. 4 million calls and 3.9 million puts traded through 11:30am ET.

This Morning's Bullish Trading

General Electric (GE) is up 43 cents to $23.70 and helping to lead the Dow Jones Industrial Average to new record highs Tuesday. GE is one of 28 Dow stocks moving higher today. Only Merck and Coca Cola are in the red. GE is among the Dow thirty and is, in fact, the only company that was also part of the original Dow Jones Industrial Average. Charles Dow created the industrial average in 1896 to track the second most important industry at the time. The Dow Jones Railroad Average was published first in 1884. Fast-forward to today, GE is helping the Dow move to new records and options volume on the stock includes 42,000 calls and 22,000 puts. March 24 calls, which are now 30 cents out-of-the-money and expiring at the end of next week, are the most actives in GE. More than 24,000 contracts have changed hands so far.

Safeway (SWY) is up 35 cents to $24.25 and moving higher today ahead of the company's Investor Day, which takes place today and tomorrow. In options action, March 25 calls on the stock are seeing interest. Several lots traded for 40 cents around 10:30am ET and then some traded later for 45 cents per contract. Total volume in the contract is 8,300 against 4,597 in open interest. Mar 25 calls on SWY are now 75-cents out-of-the-money and expiring at the end of next week.

This Morning's Bearish Trading

CREE surged $7.24 to $51.96, new 52-week highs, on heavy volume of 7.5 million shares after the company upgraded its third quarter outlook and also unveiled a new LED bulb. The stock is rallying and options on CREE are seeing brisk trading. 24,000 calls and 38,000 puts so far. The top trades are part of a spread, in which the investor apparently sold 10,000 June 46 puts on the stock at $3.04 and bought 10,000 June 50 puts for $4.90. The spread, for $1.86, might roll a position up in strikes, because open interest in the June 46 puts is more than 12,000 and the largest block of OI in the stock. An investor might be closing the position after the big move in CREE, while opening a new block of puts at the Jun 50 strike. An investor with a large position in shares might have bought the spread to adjust a protective put position in CREE.

Walgreens (WAG) dropped $1.19 to $40.58 in active trading of 7.1 million shares after the company updated its February Same Store Sales results. Shares are down on the news and options volume is approaching 20,000 contracts. About 11,000 puts and 8,500 calls traded on the stock so far. While March 42 calls are the most active, March 39, Apr 34, Mar 38 and Mar 40 puts are busy as well. 30-day implied volatility on WAG options is moving up 6 percent to 22.5.

Volume Signals

CREE options volume is running 5X the (22-day) average, with 58,000 contracts traded and put volume accounting for 62 percent of the volume.

MGIC (MTG) options volume is 2.5X, the average daily, with 24,000 contracts traded and call volume representing 71 percent of the activity.

Genworth (GNW) options volume is running 3X the average daily, with 36,000 contracts traded and call volume accounting for 86 percent of the activity.

Increasing options activity is also being seen in Southwest Energy (SWN), Juniper Networks (JNPR), and the SPDR Consumer Staples Fund (XLP).

Implied Volatility Mover

Implied volatility in the options on JC Penney (JCP) is moving higher, as shares of the retailer set new 52-week lows Tuesday. The stock is down another $1.52 to $15.22, new 52-week lows, on reports Vornado Realty Trust (VNO) is selling a 10 million share block of JC Penney common stock. JCP dropped on the news and options on the stock are busy again Tuesday. 34,000 calls and 81,000 puts so far. Apr 16, Mar 17, and Mar 15 puts are the most actives and 30-day implied volatility is up 8 percent to 69.

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