Market Stays Below Resistance – Tuesday March 22 2011


Stock market averages are showing modest losses in a morning of relatively slow trading Tuesday. With no economic data or earnings of importance to guide the action, some of the focus was on the commodities markets where crude oil topped $104 per barrel on escalating tensions in Libya and the Middle East.

Beyond that, there really hasn't been much news to drive trading and the action has a wait-and-see feel to it. The Dow Jones Industrial Average, which has moved more than 100 points in four of the past five trading sessions, has been in a narrow 48-point range and is down 18 points at midday. The tech-heavy NASDAQ lost 7. The CBOE Volatility Index (.VIX) is down another .58 to 20.02. Trading in the options market is a bit slower than in recent days, with 4.3 million calls and 3.6 million puts traded through 12:30pm ET.


Bullish Flow

Sprint Nextel (S) is attempting to rebound from yesterday's 13.7 percent slide. The stock came under pressure Monday after AT&T (T) made a $39 billion bid for rival T-Mobile. Sprint shares have added 19 cents to $4.55 through midday today, however, and options volume includes 83,000 calls and 16,000 puts. Two of the top trades of the day surfaced early when a block of 2,500 April 4.5 calls traded at 20 cents and 2,500 April 5 calls at 6 cents. The action looks like a bullish April 4.5 – 5 call spread at 14 cents. If so, the timing was pretty good so far. Shares were 12 cents lower at the time and the spread has since widened to 18 cents.

Tenet Healthcare (THC) is down 7 cents to $7.03 and 6,870 calls have traded in the managed care company. The volume is 3X the normal for midday and compares to put volume of zero contracts. The action is concentrated in May 7 call options and includes a block of 4,870 at 30 cents when the market was 20 to 30 cents. 5,857 contracts now traded and might add to existing bullish positions (or possibly close). Open interest in the May 7 call is already 32,725 contracts and the largest position in the name.


Bearish Flow

Freeport McMoran Copper and Gold (FCX) puts are actively traded today. Shares are off 48 cents to $51.95 and 40,000 contracts have traded so far. April 50 puts have traded 22,150 contracts and are the most actives. Most of the action has been in smaller size. The biggest trade of the day is a 441-lot at $1.46 right at the opening bell. Open interest is 17,921 and so today's volume is probably opening activity, possibly a short-term hedge. The April 50 puts are 3.8 percent out-of-the-money with three and half weeks of life remaining.

Dentsply International (XRAY), a York, PA maker of dental laboratory products, saw a volatile move lower in mid-morning trading Tuesday. Shares opened at $35.56 and then came under fire just before 12:00pm ET, falling to $34.83 on heavy volume. No obvious news to explain the volatility and shares have since rebounded to $35.55. Meanwhile, 1420 puts and 70 calls traded in the name. April 30 and 35 puts are the most actives.


Implied Volatility Movers

The CBOE Volatility Index (.VIX) is trading lower, even as the S&P 500 (.SPX) loses 4.5 points through midday. VIX is down .54 to 20.07. The volatility index, which tracks the expected volatility priced into SPX options, normally moves higher when the market falls. Today, however, VIX is extending its recent losing streak and has now given up 35.8 percent since hitting multi-month highs of 31.28 set last Wednesday. The drop in market's "fear gauge" signals declining risk perceptions, as some of the fears about the Japanese nuclear crisis have been receding over the past few days.''

Unusual Volume


Walgreens (WAG) options volume is running 5X the (22-day) average, with 57,000 contracts traded and call volume accounting for 61 percent of the volume.

Kinross Gold (KGC) options volume is 3.5X the average daily, with 55,000 contracts traded and call volume representing for 72 percent of the activity.

Bristol Myers (BMY) options volume is running 2X the average daily, with 46,000 contracts traded and call volume accounting for 68 percent of the activity.

Increasing options activity is also being seen in Nike (NKE), Allstate (ALL), and SPDR Utilities (XLU).



Posted in Commentary, Futures, Options, Stocks, Watchlist