Cusick's Corner

The Euro currency cracked, FXE, $1.30 in the overnight session after the French election results came in and after the situation in Greek politics, well, failed. At this stage I am managing headline risk, the EU is in tenuous state and the Euro will be my barometer as previously I noted Friday. While this pullback through $1.30 did get the attention of traders early, it is not $1.26 which is what some would have guessed where the currency could have gone after these headlines. There might be some corrective action over the next few days, so defense is going to be the action of most market traders. Those names that have been really beat up will be the initial focus early this week as potential trade candidates. See you After Hours.

Market Recap

Stock market averages are sporting modest losses midday-Monday. Late-Sunday, stock index futures had fallen sharply on the heels of election results in France and Greece. While the French elections didn’t hold any surprises, uncertainty remains about the situation in Greece and whether a shift in power could derail recent efforts to stem the debt-ridden country’s fiscal crisis. Yet, while the euro had made a move below 1.30 when markets resumed trading late-Sunday, it had rebounded Monday morning and was recently down just .3 percent to 1.4037 on the dollar. In addition, stock market averages are holding gains across much of the Eurozone, being led by a 2.8 percent jump in Spain’s IBEX. Orderly trading in the European currency and equity markets seems to have helped keep a floor under stock prices on Wall Street as well. The Dow Jones Industrial Average is down just 36 points and the NASDAQ had lost 2.8. Crude oil is down another $1.17 to $97.32 per barrel and gold lost $7.5 to $1,637.5 an ounce. CBOE Volatility Index (VIX) ticked up .08 points to 19.24. Overall options volume is running much less than Friday, with approximately 3.1 million calls and 3.2 million puts traded across all the exchanges through 11:40am ET.

This Morning's Bullish Trading

DISH Networks (DISH) shares are down 86 cents to $30.45 in active trading of 2.6 million shares after the company reported quarterly earnings of 80 cents per share, which was 9 cents better than Street estimates. Revenues were a bit lighter than expected and shares are lower on the results. However, options order flows seems to reflect some bullish sentiment in DISH. 12,000 calls and 2,100 puts traded on the stock so far. June 35 calls, which are 14.9 percent out-of-the-money and expiring in 39 days, are the most actives. 6,600 traded and 53 percent traded at the asking price, suggesting that some call buyers might be initiating trades on today’s weakness in the underlying stock. May 33 calls are the next most actives. 3,685 traded and 73 percent traded at the offer or asking price.

An interesting spread trades in Cisco (CSCO) ahead of its earnings report. The networking giant is due to release results Wednesday afternoon. Shares are up 4 cents to $19.16 on the day and, in morning action, a block of 6250 May 19 calls trades on the stock for 66 cents per contract while 12,500 May 20 calls trades at 24 cents. Taken together, the position looks like a May 19 – 20 (1X2) call ratio spread for an 18-cent debit. If opening, the position offers its best payout if shares settle at $20 at the May expiration, which represents a 4.4 percent advance over the next 11 days. The debit is at risk if CSCO trades below $19 and the position is left open through the expiration. There is additional upside risk when dealing with call ratio spreads because not all of the higher strike calls, which were sold, are covered by the lower strike calls, which are bought.

This Morning's Bearish Trading

iStar Financial (SFI) is down 15 cents to $6.33 and options on the New York, NY Real Estate Investment Trust [REIT] are seeing heavy trading today. Nearly 50,000 puts and 290 calls so far. Most of the activity is due to spread trading, in which the investor is apparently selling January 5 puts and buying 2014 $5 puts. The spread traded for 65 cents, 15000X. 25,000 now traded in both contracts and the activity appears to be rolling. Open interest in January 5 puts on SFI is more than 65,000. It is possible that one or more investors are selling to close positions in January 2013 puts on SFI and now opening new positions in the January 5 puts that expire in 2014. These investors might be worried that SFI will erase the 19 percent advance seen so far in 2012 and, by early 2014, revisit the 52-week lows of $4.51 seen in August.

Four of the five most active options Monday morning are puts on the SPDR 500 Trust (SPY). Total options volume in the so-called “SPYders” is 783,000 puts and 330,000 calls. Shares have erased early losses and are now up 12 cents to $137.12. May 137, May 135, and May 133 puts are the most actives today. High volume in downside puts in SPY is perhaps a reflection of the cautious underlying sentiment seen in the market to start the week. That is, some investors might be taking positions in the contracts on worries that S&P 500 will see additional weakness over the next two weeks.

Implied Volatility Mover

Implied volatility in the options on Tempur Pedic (TPX) is up sharply today amid increasing levels of put activity. Shares of the Lexington, KY mattress manufacturer are down $8.20 to $48.51 on heavy volume of 9.3 million shares. The slide might be due to negative broker commentary, but that hasn’t been confirmed. For whatever reason, TPX is down today and the options volume, of 23,000 puts/8,300 calls, is 4X the daily average for the name. At the same time, levels of implied volatility in the options on the stock jumped 34 percent to 58.5.

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