Waiting to Exhale

Cusick's Corner
My sentiment has not changed much since the After Hours yesterday. The sideline money is still very nervous, missing the boat as they say and it was noticeable that this group was nibbling on the "Risk" trade all day. So I am not fading this move and will still be looking at strategies that take advantage of high volatility and a bullish sentiment, i.e. the bull put spread. The market does have a greater sense of normalcy so volatility could naturally start to exhale out of the market, thus we would see these credit strategies crumble. I have not initiated any positions at this stage but have some on the radar in the S&Ps. I am still working with a smaller size (a bit larger today than last week when volatility was higher). These are swing trades in nature, looking for volatility to really come out and if these very specific price targets are touched, will get me out of the trade both for the plus or negative. See you After Hours.

Stock market averages fell on disappointing economic news and now the attention shifts to minutes from the latest Federal Reserve meeting on monetary policy. Economic data was in focus early after Case Shiller reported that its index of home prices across 20 cities fell 4.5 percent in June, which was a bit better than the 4.7 percent decline that was expected. Stock market averages opened modestly lower on the data and then fell deeper in the red after the Conference Board reported that its index of consumer confidence fell to only 44.5 in August, from 59.2 the month before and well below economist estimates of 52.0. However, the morning sell-off proved short-lived and, possibly with the help of end-of-month position squaring, the Dow Jones Industrial Average was back in positive territory by late-morning. The Dow is now down 38 points, however, and the tone of trading has a wait-and-see feel heading into the release of FOMC minutes, due out at 1:00 central time. Investors will scrutinize the text for clues regarding the Federal Reserve's next move. The tech-heavy NASDAQ has moved in and out of positive territory as well and was recently down 6 points. CBOE Volatility Index (.VIX) is up .80 to 33.08. Overall options volume is light for a second day, with 3.7 million calls and 3.6 million puts traded across the exchanges through 12:30pm ET.

Bullish Flow
CoreLogic (CLGX), a Santa Ana, CA provider of property, financial and consumer information and analytics, is rallying today after the company said it has hired an advisory firm to explore strategic alternatives, including a possible merger or sale of the company. Shares are up 25 percent to $11 and options volume in CLGX through midday is 16,000 calls and 715 puts. Typical volume is less than 200 contracts. January 12.5 calls, which are 13.6 percent out-of-the-money, are the most actives. 8,310 traded. Some players might be taking positions in the contract on the view that a possible sale or merger of the company will lift shares beyond $12.5 through the January 2012 expiration. October and April 12.5 calls are the next most actives in CLGX today.

Dryships (DRYS) options action is picking up ahead of earnings. Shares have added 11 cents to $3.20 and are up about 25 percent in the past week. There seems to be some optimism building in the name, as calls on Dryships are also busy today. 14,000 traded, which is about double the typical volume and compares to put volume of 4,100 contracts. September 3.5 calls are now 9.4 percent out-of-the-money and are the most actives in the dry bulk shipper today. 1,900 traded. September 3 and 4 calls are busy as well. Some speculators are probably taking positions in these short-term contracts on hopes for a post-earnings rally in DRYS shares. September options expire in 17 days. Dryships reports results after the closing bell today.

Bearish Flow
Puts on Silvercorp Metals (SVM) are active again despite strength in the share price today. In Friday's midday report, we noted increased activity in the October 7 puts on the Vancouver-based mining company. Yesterday, the focus was on September 7s as well as the October 5, 9 and 10 puts. Today, shares are up 7 percent to $8.64 and options volume in SVM includes 29,000 puts and 8,000 calls, or about 3.5X the recent average daily in the name. December 6 puts, which are now 30.6 percent out-of-the-money, are the most actives. 7,140 traded. September 6, September 9, December 8 and January 5 puts are seeing active trading as well. It's not clear what is driving the action, but some investors appear to be buying out-of-the-money puts on SVM on concerns about the short-term outlook for the stock.

Assured Guaranty (AGO) shares are down 31 cents to $13.65 and options volume in the mortgage insurance company is 5,450 puts and 545 calls, are ratio of ten-to-one . The action includes some spread trades. For example, in morning trading, 451 October 13 puts traded at the $1.30 asking price while 451 October 8 puts traded on the 20-cent bid. This appears to be an Oct 13 - 8 put spread for a $1.10 net debit. Shares are up 40.6 percent from a 52-week low of $9.71 set on 8/9 and today's spread trader might be taking a position on concerns that some of those gains will be lost in the weeks ahead.

Unusual Volume
JDS Uniphase (JDSU) options volume is running 3X the (22-day) average, with 48,000 contracts traded and call activity accounting for 84 percent of the volume.

SilverCorp Metals (SVM) options volume is 3X the average daily, with 34,000 contracts traded and put volume representing 78 percent of the activity.

Intrepid Potash (IPI) options volume is running 9X the average daily, with 17,000 contracts traded and call volume representing 76 percent of the total volume.

Increasing options activity is also being seen in Savient Pharmaceuticals (SVNT), Fidelity National (FNF), and Equity Residential (EQR).

Implied Volatility Mover
Dollar General (DG) implied volatility is falling, as shares rally around earnings news. DG gained $2.20 to $35.99 after the retailer reported a 52-cent per share quarterly profit, which beat Street estimates by four cents. Options volume in Dollar General is 3,480 calls and 420 puts. September 35 calls, which saw interest ahead of the news (see yesterday's closing report), are the most actives again today. 2,496 traded. Some players might be closing positions after the stock's move higher, as the contract is now 99 cents in-the-money. Implied volatility in the options on the stock is down 31 percent to 30.5.