Midday Update for February 4, 2011

S&P 500 Index (.SPX) 1,307.49 +0.39
CBOE Volatility Index (.VIX) 16.30 -0.39
DJIA 12,066.31 +4.05
NASDAQ 2,762.70 +8.82

Stock market averages have traded in a narrow range following a mixed jobs report Friday. Data released before the opening bell showed the US economy adding 36,000 payrolls during the month of January. Economists were looking for an increase of 148,000. However, the unemployment rate unexpectedly fell to 9 percent, from 9.6 percent and significantly better than the 9.5 percent that economists had predicted. Average hourly earnings rose .4 percent, and twice more than expected. Beyond that, it's been a relatively slow news day. Some of the market's attention is still on Egypt where protestors are holding a "Day of Departure" to oust President Mubarak. The events seem to be having relatively little market impact so far. The Dow Jones Industrial Average has traded in a narrow 53-point range and is down 14 points. The tech-heavy NASDAQ added 1.5. The CBOE Volatility Index (.VIX) is down .23 to 16.46. Options volume is running about the typical levels, with 4.3 million calls and 3.4 puts traded through 12:00pm ET.

Bullish Flow

Aetna (AET) touched a new 52-week high and is trading up $2.97 to $36.24 after the insurance company reported a better-than-expected earnings, raised guidance for the 2011 fiscal year, and announced plans to increase its dividend. Options action in Aetna is picking up as well. 10,000 calls and 5,840 puts traded in the name through midday. The action is scattered across a number of contracts. February 38 calls are the most actives. 1,270 traded. Short-term players are focused on the Feb 34 and 37 call options as well. February options expire in two weeks.

Radioshack (RSH) adds 48 cents to $15.67 and options volume in the electronics retailer is running 4X the average daily, with 12,000 calls and 2,650 puts traded so far. February 16 calls, which are 23 cents out-of-the-money, are the most actives. 6,150 traded through midday. Short-term speculators are active in the name on unconfirmed market chatter that an activist investor might be taking a look at Radioshack, per Briefing.

Bearish Flow

Peabody Energy (BTU) shares are trading down $1.48 to $63.31 and options volume includes 14,000 puts and 3,770 calls. The top trades are part of a spread, in which an investor sold 4,500 February 55 puts and bought 4,500 March 55 puts. They paid 44 cents for the spread. A bearish investor, or possibly a shareholder looking for a hedge, might have initiated the spread and rolled a position of BTU puts from one month to the next.

Acuity Brands (AYI), an Atlanta-based electronics and lighting company, is trading down 65 cents to $55.68 and 1,675 puts traded. The action is 35X the typical put volume for the name and compares to call volume of only 51 contracts. The focus is on the May 60 puts. 1,540 traded and, with 100 percent trading at the ask-side of the bid-ask spread, it appears that put buyers are taking positions and bracing for additional weakness in AYI in the months ahead.

Implied Volatility Movers

Las Vegas Sands (LVS) implied volatility is plummeting. The casino operator reported earnings late-Thursday. While results beat Street estimates, revenues fell short of expectations. Consequently, shares are trading down $3.20 to $47.08 and options action is heavy, with 173,000 calls and 73,000 puts traded in the name. Implied volatility is down 19 percent to 43.7 and not far from 52-week lows of 43.4.


Unusual Volume

Xilinx (XLNX) options volume is running 6X the average daily, with 96,000 contracts traded and put volume accounting for 99 percent of the volume, according to data from WhatsTrading.com.

JDS Uniphase (JDSU) options volume is 5X the average daily, with 52,000 contracts traded and call volume representing for 74 percent of the activity.

Sandridge Energy (SD) options volume is running 3.5X the average daily, with 48,000 contracts traded and call volume accounting for 89 percent of the activity.

Increasing options activity is also being seen in Tesoro (TSO), Ciena (CIEN), and Ann Taylor (ANN).



Posted in Commentary, Earnings, Futures, Options, Stocks