Cusick's Corner 02-06-2013 Midday

Nice move yesterday but the follow-through has not transpired, especially in the Tech sector. The QQQs continue to lag the market and this does weigh on the market bulls. But looking at the oX put/call ratio of .44, it actually has been backing away from last month's .30 levels, so there is no sentiment confirmation of a potentially stronger bearish cycle. Two markets that are breaking down are Crude, USO, and Copper, JJC. Both look to be potentially challenging lows, especially Crude at this stage but need to see a lower close in the After Hours.
Stock market averages have rebounded from morning losses and are holding modest gains, as investors digested another barrage of profit reports Wednesday. With no economic data to guide the action, some of early attention was on overseas markets. Japan's Nikkei scored a 3.8 percent gain overnight and led Asia's equity markets on reports Governor Masaaki Shirakawa had stepped down three months earlier than expected. The news seemed to fuel speculation that more aggressive easing by Japanese officials is in the cards in the intermediate-term. However, European equity markets are mostly lower and the euro dropped .4 percent to 1.3533 amid renewed political and economic uncertainty in the region ahead of a meeting of EU leaders tomorrow. Crude oil rebounded from early losses and is up 11 cents to $96.75 on weekly inventory data. Gold gained $2.5 to $1676.On Wall Street, earnings news is driving a lot of the action as well. Zynga (ZNGA), Melco Crown Entertainment (MPEL), and Take Two (TTWO) are among the big earnings moves. Apple (AAPL) rose 1 percent with Bloomberg citing talk the company might return cash to shareholders as the catalyst for the strength. The Dow is up 8 points and the tech-heavy NASDAQ gained 3. Overall trading volume in the options market is relatively light again today, with 4 million calls and 3.5 million puts traded through 12:15pm ET.
Bullish Flow

Zynga (ZNGA) is up 13 percent to $3.10 in very heavy trading of 67 million shares after the Redwood City, CA social media company reported earnings that topped expectations. Meanwhile, options volume swelled to 4X the daily average, with 120,000 calls and 17,000 puts traded in the name - a ratio of more than ten-to-one. March 3 calls, which are now ten cents in-the-money and expiring in 36 days, are the most actives in Zynga. 38,220 traded. February 2.5 and 3 calls are seeing brisk trading as well and implied volatility is down 36 percent to 63.
US Airways (LCC) is up 44 cents to $14.53 and options volume on the airliner is impressive, as 54,000 calls and 1,700 puts traded on the stock so far. Three big block trades drove much of the volume after an investor sold 20,000 March 17 calls on LCC and, separately, 10,000 March 15 calls and 10,000 March 16 calls were bought. Looking at trade history of these three contracts, the activity might roll down in strike prices. That is, the investor had bought a hefty 20,000-lot of March 17 calls, which they are now liquidating. They are also taking positions in the 20,000 March calls with an average strike price of 15.5. They possibly had a bullish view on LCC, but are now rolling the position down and scaling back their expectations for the upside move from $17 per share (to a lower strike) through the March expiration.
Bearish Flow

Hefty blocks of options traded in two of the international exchange-traded funds Wednesday. In morning action, one investor sold almost 130,000 December 68 calls on the iShares EAFA Fund (EFA) at 36 cents per contract and bought the same number of April 57 puts on EFA for $1.08. The massive risk-reversal, for 72 cents, appears to be a new position because volume exceeds open interest in both contracts. Shares are down 13 cents to $58.52 and the combo was perhaps initiated to hedge the risk of holding a portfolio of international names. EFA is an exchange-traded fund that holds shares of companies from European, Far Eastern, and Australasian equity markets.
Meanwhile, iShares Emerging Markets Fund (EEM), which holds names from developing economies like Russia, Brazil and China, is down 17 cents to $43.80 and a massive put spread traded on the ETF. An investor sold 105,000 February 44 puts on EEM at 55 cents and bought 105,000 March 44 puts for 63 cents. The spread, for 8 cents, probably rolls out a bearish position, or hedge, from February to March. Feb 44 puts on EEM are 20 cents-in-the-money and expiring at the end of next week.
Unusual Volume

iShares EAFE Fund (EFA) options volume is running 6X the (22-day) average, with 109,000 contracts traded and put volume accounting for 57 percent of the volume.
Zynga (ZNGA) options volume is 3.5X, the average daily, with 119,000 contracts traded and call volume representing 88 percent of the activity.

US Airways (LCC) options volume is running 2.5X the average daily, with 51,000 contracts traded and call volume accounting for 97 percent of the activity.
Increasing options activity is also being seen in UAL, Genworth (GNW), and Disney (DIS).
Implied Volatility Mover

Implied volatility in the options on Gamestop (GME) is higher, as shares of the video game retailer drop Wednesday. The stock is down $1.69 to $25.11 on heavy turnover of 7.5 million shares on reports Microsoft's new XBOX counsel will require an Internet connection and may not permit the use of gaming discs. GME options volume is 4.5X the daily average. 15,000 calls and 10,000 puts traded on the stock so far and implied volatility is moving up 22.5 percent to 44.
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