Cusick's Corner 03-21-2013 After Hours

The market finished at its worst levels of the day but it held up well, even with the lack of new participants. While the dips were not aggressively bought, scalpers seemed to be having a busy day. Commodities like Crude, USO, Nat Gas, UNG, and Gold, GLD, were all busy. USO and UNG came under decent pressure especially in the face of the Dollar, UUP, which continues to be strong in the currency markets. The Dollar's strength is putting pressure on global markets and this may be a potential catalyst for some new money to flow into the US equities. Also, Gold is holding up in the face of a falling market and rising Dollar. We should keep an eye on these dynamics, especially on Gold decoupling from the markets and the Dollar which could be an indicator that future inflation is potentially closer than we think. See you Midday.
Stock market averages slumped into midday and then suffered additional losses in afternoon action Thursday. The economy was in focus early after the Labor Department reported that jobless claims increased by 2,000 to 336,000 last week which was better than the 345,000 that was expected. Separately, Existing Home Sales Increased to an annual rate of 4.98 mln in February, from 4.94 mln and mostly in-line with expectations. The Philly Fed Manufacturing Survey was +.2 for March, from -12.5 last month and better than the -3 that was expected. This week's final economic data showed the List of Leading Indicators up .5 percent for February and in-line with expectations. Yet, Oracle (ORCL) shares dropped nearly 10 percent and weighed on the tech sector in the wake of its earnings report. And, although KB Homes (KBH), Lululemon (LULU), and Ross Stores (ROST) shares saw post-earnings strength, sentiment was cautious after Eurozone markets fell into the red and the euro lost .3 percent to 1.2915 against the dollar on a weak manufacturing report in Germany. The Dow was down 45 points midday and slipped further in the second half of trading, losing 91 points for the day. The tech-heavy NASDAQ dropped 31.6 points.

Micron Technology (MU) saw a flurry of activity today ahead of earnings. The stock was down 24 cents to $9.07 in active trading of 34.5 million shares. Meanwhile, 136,000 calls and 44,000 puts traded on the Boise, ID memory chip-maker. April 10 calls were the most actives in the name. Nearly 25,000 traded. May 8 puts and 10 calls were the next most actives, as some investors were selling the puts to buy calls, according to data from ISE. This May 8 - 10 bullish "risk-reversal" traded more than 20,000X on the day and seemed to be expressing the view that Micron shares might be heading north of $10 through the May expiration. It's off to a good start it seems, as the stock is up 3.8 percent to $9.42 in extended hours trading Thursday after the company beat on earnings and revenues.

Bullish trading was also seen in Dryships (DRYS), CA Technologies (CA), and BMC Software (BMC).

Humana (HUM), the Louisville, KY managed healthcare company, sees a second day of bearish trading. As noted in yesterday's closing report, 21,000 puts and 2,920 calls traded in Humana Wednesday, including a 9,665-contract block of April 65 puts for $1 per contract. The stock was down $1.09 to $68.36 in brisk trading of 3.2 million shares today; and 19,000 calls and 45,000 puts traded in HUM, which is 8X the daily average. One large three-way spread in the August options drove much of the activity, as an investor apparently sold 9,200 August 75 calls on HUM to buy an August 60 - 67.5 put spread, 11340X. The position looks opening because volume exceeds open interest in all three contracts. A shareholder might have initiated the trade as a type of "collar" or protective strategy against a stock position.
Bearish trading was also seen in Pharmacyclics (PCYC), ARM Holdings (ARMH), and JDS Uniphase (JDSU).
Index Trading

It was another busy day in the CBOE Volatility Index (.VIX) options trading pit, but off the levels seen Tuesday and Wednesday. Tuesday was a record setting day for the options on VIX, as volume reached an all-time high of 1.39 million contracts. Another 1.34 million contracts traded on the index Wednesday. Today, 609,000 calls and 167,000 puts traded in VIX options. The index was up 1.32 points to 13.99 after the S&P 500 shed 12.91 points to 1,545.80. April 17 calls were the most active on VIX. Volume in the upside call option approached almost 70,000 contracts. May 17, Apr 27, Apr 18, and Apr 20 calls were the next most actives.
ETF Action

SPDR Homebuilders Trust (XHB) drops 59 cents to $29.93 after today's Existing Home Sales numbers failed to motivate new highs in the ETF, even as shares of KB Homes (KBH) moved up on earnings. XHB, which holds shares of leading homebuilding companies, rose to multi-year highs yesterday in the wake of upbeat news from two of its components - LEN and TOL. The ETF drifted a bit lower today, however, and options volume on the ETF was 4.5X the daily average. 52,000 puts and 13,000 calls traded on the fund today. September 24 and 29 puts were the most actives, as some investors were apparently buying the spread (buying 29 strike and selling 24s), possibly taking positions in anticipation of a pullback in XHB after the 14 percent year-to-date advance in shares of the exchange-traded fund. The spread traded 20000X.
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