Midday Update for February 3, 2011

S&P 500 Index (.SPX) 1,302.44 -1.59
CBOE Volatility Index (.VIX) 17.02 -0.28
DJIA 12,035.96 -6.01
NASDAQ 2,747.71 -1.85

Stocks are trading mixed midday. January same-store sales were in focus early after a number of retailers surprised with better-than-expected results. Costco (COST), The Limited (LTD), and Gap Stores (GPS) are among the names moving higher Wednesday morning. Meanwhile, the SPDR Retail Trust (XRT) has added $1.08 to $47.21. On the economic front, data released before the bell showed weekly jobless claims falling by 42,000 to 415,000 in late-January. Economists were looking for a decline of 32,000. Two separate reports released later were also better-than-expected. The ISM Services Index jumped to 59.4 in January, from 57.1 in December and much stronger than the 57.0 that economists had predicted. Factory Orders rose .2 percent in December, which was also significantly better than the -.6 percent that was expected. Overall, the data and same store sales numbers were good. Yet, the Dow Jones Industrial Average is struggling amid concerns about the escalating unrest in Egypt and other Arab nations. A rally in ten-year bond yields, which are now testing December multi-month highs above 3.5 percent, is probably weighing on sentiment as well. The Dow is down 13 points at midday. The NASDAQ is off 1.4. The CBOE Volatility Index (.VIX) is down .26 to 17.04. Options volume is running about the typical levels, with 4.9 million calls and 3.8 puts traded through 12:30pm ET.

Bullish Flow

Yahoo (YHOO) was the subject of an interesting trade today. Shares of the Internet giant are up 21 cents to $16.78 and one strategist bought the April 18 – 20 call spread at 30 cents, 45500X. In this spread, the investor bought 45,500 of the April 18 calls at 50 cents and sold 45,500 April 20 calls at 20 cents. The position, for a net debit of 30 cents (X100X45500), is an aggressive play, as it makes its best profits if shares rally to $20 or more by the April expiration. More than 53,300 of both contracts have now traded.

The biggest options trades so far today are in the SPDR 500 Trust (SPY). The "Spyders" are trading down a dime to $130.39 and one investor sold 66,000 February 132 calls at 69 cents and bought the March 132 – 135 call spread at $1.08, 100000X. The February calls look like a closing trade. Meanwhile, the March spread, which involved buying 100,000 March 32s at $1.75 and selling 100,000 March 35s at 67 cents, looks like a new position. So, this is probably a roll out of February and into March calls.

Bearish Flow

A couple of China-related names are seeing bearish trading Thursday. China MediaExpress (CCME), a Hong Kong-based advertising company, is trading down $1.13 to $15.48. 26,000 puts and 13,000 calls traded in the name so far, which is more than double the average daily. Trading is brisk in February puts with strike prices ranging from 10 to 18. February 12 and 18 calls are seeing interest as well. Players are probably reacting to the volatility in the share price. CCME has been slammed for a 30.6 percent loss over the past 5 trading days.

Meanwhile, Beijing-based chemical maker China Agritech (AGI) is trading down 10.1 percent today, to $9.69 per share, and options volume is 13X the average daily. 19,000 puts and 2,160 calls traded in the name so far. February 7.5, February 9, February 10, and February 11 puts are the most actives. Like CCME, some investors are likely reacting to volatility in the shares, as CAGC is now down 26.5 percent in less than one-month

Implied Volatility Movers

BJ's Wholesale (BJ) implied volatility is falling on reports the retailer has hired Morgan Stanley to explore the possible sale of at the company. Shares are up $5.89 to $48.90 and touching a new 52-week high. Options volume is 13X the average daily. 30,000 calls and 15,000 puts traded in the name so far. Implied volatility in BJ is down 23 percent to 30.


Unusual Volume

Green Mountain Coffee Roasters (GMCR) options volume is running 6X the average daily, with 51,000 contracts traded and put volume accounting for 59 percent of the volume, according to data from WhatsTrading.com.

BJ Wholesales (BJ) options volume is 13X the average daily, with 45,000 contracts traded and call volume representing for 66 percent of the activity.

CVS Caremark (CVS) options volume is running 2X the average daily, with 23,000 contracts traded and put volume accounting for 55 percent of the activity.

Increasing options activity is also being seen in International Paper (IP), Celgene (CELG), and Ann Taylor (ANN).

Posted in Commentary, Futures, Options, Stocks