Sentiment
Market action is mixed late-Thursday, as hopes for Greece offset news of a much wider Trade Deficit. The report showed the US deficit widening to $51.8 billion in March, from $45.4 billion the month before and worse than the $50.2 billion that was expected. The wider deficit underscores the notion that the US economy has been weakening. Separate data showed jobless claims falling by 1,000 to 367K last week. Economists had predicted a decline to 365K. At the same time, a lot of the focus remains on events on the other side of the Atlantic and a 3.4 percent rally in Spain's IBEX seems to have eased some of the recent anxiety related to the European debt mess. Most European equity markets scored modest gains Thursday on hopes Greece will soon form a government and take the other necessary steps to remain part of the Euro block. Consequently, trading has been relatively orderly across global financial markets so far today. Crude oil ticked 25 cents higher to $97.06 and gold edged up $2.5 to $1596.50 an ounce. The Dow Jones Industrial Average has been rangebound throughout much of the session and is up 46 points. The tech-heavy NASDAQ battled back from morning weakness and is up 7 points. CBOE Volatility Index (.VIX) is off 1.21 to 18.87 amid lighter volumes in the options market. 6.2 million calls and 5.2 million puts traded across the exchanges thus far.
Bullish Flow
Cisco (CSCO) is down $1.61 to $17.16 on disappointing guidance and one player seized the weakness to collect 23 cents on an Oct 16 - 19 bullish risk-reversal, 54500X. In this hefty position, the strategist sold downside puts to buy the upside calls, according to a source on the exchange floor. The big combo is possibly tied to 500K shares at $17.16 and looks like an opening position targeting a rebound in Cisco through mid-October. The stock had a brief stint above $21 per share at the end of the first quarter before coming under pressure early in the Q2. CSCO is now 19.4 percent below its Apr 2nd 52-week high.
CNO Financial, a Carmel, IN insurance company, is trading up 30 cents to $7.14 and saw a lift Thursday midday after CNBC made note of the bullish options order flow in the name. Most of the activity surfaced shortly after 11:30 and included a multi-exchange sweep of 1,100 Dec 8 calls for 50 cents per contract and 979 for 55 cents. Data from ISEE reports opening customer buyers and IV in the contract is up 7 percent to 45. Dec 8 calls on the stock are 12 percent OTM with a .42 delta and 61 contracts of open interest. The market is now 55 to 60 cents and 2,380 contracts have changed hands. Prior to today, the stock had been in a slump - falling more than 15 percent from the 52-week highs seen in late-March.
Bearish Flow
Paccar (PCAR) is off 64 cents to $39.84 and bearish flow is detected on the Bellevue, WA auto parts maker after multi-exchange sweeps of May puts traded on the stock in afternoon action Thursday. The largest is 965 May 39.3 puts for 62.5 cent per contract. 4,045 traded. May 37.3, 38.3 and 40.3 puts are also seeing interest and 30-day ATM vols are up 29.5 percent to 40. Share volume is 6 million and almost 3X the expected after the company received noticed from the SEC related to an investigation for reporting of financials from 2008 to 2011. The funky strike prices in PCAR options are the result of a contract adjustment due to a special 70-cent dividend paid earlier this year.
Implied volatility Mover
Tail Risk trade in the Qs (QQQ) as an Aug 50 - 56 put spread is bought on the ETF for 50 cents, 30000X, to open. QQQ is off 18 cents to $64.14 on the heels of the 10 percent post-earnings slide in Cisco and the Aug 50 - 56 put spread offers its best payout if the NASDAQ 100 falls by more than 22 percent through mid-August. Implied volatility in the Qs, as measured by the QQV Index, is down .47 to 19.84 today after a five-day 23.1 percent winning streak. It's been moving a lot like the VIX, which 21-22 proving to be the upper end of the recent range. The put spread seems to be a bet on higher vols and is also taking advantage of skew. Implied volatility in the 56s is around 27 compared to 32 for Aug 50 puts.
