Choppy Action 11-14-2011

Cusick's Corner
This is the week of the Retailers, XRT, and the market will be focused on the consumer data all week while watching the EU headlines as austerity starts in Italy. The sentiment indicators last week, Put/Call-AAII etc, all came out very bullish which is one reason that I tempered my bullish spirit. This could be that I am a contrarian, when one side of the boat has too many on it, I tend to slide more towards the middle to other side. The Retail Sales data will give a better picture of the strength of the economy and the consumer, giving us some added insight on growth. If the consumer is pulling back, GDP will be potentially pulling back, and the consumer is 2/3 of the US GDP. The market is right off support, 1240 on the S&Ps, and these are critical levels that need to be held (and as of late have been) if the bull's case does not come under pressure. See you After Hours.

Stock market averages are falling to session lows amid ongoing worries about problems in Europe. With no domestic economic data to guide the early trading, the underlying tone on Wall Street was cautious Monday morning following a round of losses across Eurozone equity markets. A 1.3 percent drop in France's CAC 40 Index helped pace the decline, and the euro is down .9 percent against the dollar, after data showed September Industrial Production across Europe falling the most since 2009. Signs of weakening economic activity add to recent worries about the debt crisis as Greece and Italy scramble to forge new governments to stave off the crisis. In the US, morning trading was sluggish and market averages traded in a narrow range. However, the Dow Jones Industrial Average is now down 91 points and heading to session lows. The NASDAQ lost 20.6 points. CBOE Volatility Index (.VIX) added 2.32 points to 32.36. Overall options volume is on the light side, with 3.1 million calls and 3.3 million puts traded across the exchanges through 12:20pm ET.

Bullish Flow
Home improvement retailers are seeing high options volume today. Lowe's (LOW) is up 46 cents to $23.57 after the company reported quarterly earnings of 35 cents per share, which was two cents better than Street estimates. Meanwhile, options volume on the retailer is running 2.5X the daily average. 21,000 calls and 14,000 puts traded in Lowe's so far. January 22.5 calls, which are now 4.6 percent in-the-money, are the most actives. 7,640 traded. Some players might be closing out positions after a 22 percent rally in shares since September. January 24 calls, November 24 calls and November 24 puts on Lowe's are actively traded as well. Meanwhile, implied volatility in options on the stock is down 16 percent to 33, now that the earnings event risk has passed.

Home Depot (HD), which releases its earnings tomorrow morning, is seeing high volume as well. Shares of the largest home improvement retailer are up 8 cents to $38.14 and options volume is 3X the daily average, with 59,000 calls and 17,000 puts traded on the stock so far. November 39 calls, which are 2.2 percent out-of-the-money and expire at the end of the week, are the most actives. 23,360 traded. Some players might be taking positions in these short-term OTM calls on hopes that, like Lowe's, Home Depot will post better-than-expected results when the numbers are reported Tuesday morning.

Bearish Flow
Las Vegas Sands (LVS) saw a spike in morning trading and is up 92 cent so $47.29. There are no obvious headlines to explain the morning surge and shares have now rallied 23.2 percent since September. One shareholder might be looking to protect to some of the recent winnings in Las Vegas Sands shares, as the top options trade on the stock today is a 10,000-contract block of December 40 puts traded at the 57-cent asking price. Since open interest is 6,671, the position looks opening and possibly a large put purchase on concerns that the stock will give up some of its recent gains through the Dec expiration, which is in 32 days.

Approach Resources (AREX), a Fort Worth, TX Oil and Gas company, loses 61 cents to $29.37 and options volume on the stock is running 4X the daily average, being driven by a January 25 - 20 put spread for $1.35, 2000X. The strategist apparently bought 2,000 Jan 25 puts for $1.85 and sold 2,000 Jan 20 puts at 45 cents. The spread is bearish, with a max payoff if shares fall to $20 through the expiration, which represents a 31.9 percent plunge over the next 67 days. A shareholder might have initiated the trade to hedge some recent gains in the stock. AREX has surged more than 90 percent since October 3.

Unusual Volume
SPDR Financials (XLF) options volume is running 2.5X the (22-day) average, with 965,000 contracts traded and put activity accounting for 93 percent of the volume.

Corning (GLW) options volume is 5X the average daily, with 160,000 contracts traded and put volume representing 50 percent of the activity.

Novagold (NG) options volume is running 36.5X the average daily, with 134,000 contracts traded and call volume representing 93 percent of the total volume.

Increasing options activity is also being seen in Petrobras (PBR), NVidia (NVDA), and Aflac (AFL).

Implied Volatility Mover
Implied volatility in options on Career Education (CECO) is easing today. Shares, which suffered steep losses on 11/2 after earnings were reported, are up 53 cents to $8.23 after the company's Board authorized the repurchase of up to $100 million shares. The stock is rebounding a bit and options on CECO are actively traded, 6,230 puts and 1,830 calls traded on the stock so far. December 7 puts are the most actives. 5,320 traded and, with 73 percent traded on the bid and implied vols down 8 percent to 79, it looks like put sellers are dominating the action as shares of the for-profit education company move higher today.

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