Market Nibbles 11-15-2011

Cusick's Corner
This has been a choppy trade but productive in the sense that the market is holding critical levels, 1250 on the SPX. While there is still uncertainty, the bid has been active, especially in Tech, QQQ and Finance, XLF, in spite of 6% yield on Spanish debt. (This could be a byproduct of forced stock liquidation because of the ban on shorting financials in the EU). The data was decent this morning and did not weigh on the market, but the mood has tempered even with the EU situation still very much in flux. The market looks to be content with nibbling -- it's not biting at this stage which with this uncertainty, seems to make sense. See you After Hours.

Market action is mixed through midday. The table was set for morning losses on Wall Street after European stock indexes and the euro slipped on ongoing concerns about the debt crisis. France's CAC 40 Index lost 1.9 percent to pace the decline and the euro is down another .9 percent on the dollar after rising Italian bond yields rekindled worries that the debt crisis is still spreading. In the US, the domestic economic news was a bit brighter after data showed Retail Sales up .5 percent in October and .1 percent better-than-expected. Separately, the Labor Department reported that the Producer Price Index [PPI] fell .3 percent in October and .1 percent more than expected. A third piece of data showed the NY Empire Index of manufacturing activity up to .61 in November, and a bit better than the .8 percent decline that was expected. Overall, the economic numbers were mostly positive and seemed to help keep a floor under stock prices through morning trading. Overall options volume is picking up from Monday's slow pace, with 3.4 million calls and 3.6 million puts traded across the exchanges through 12:20pm ET.

Bullish Flow
Avon Products (AVP) shares are falling to 52-week lows today and were recently off 25 cents to $17.60. Options order flow on the stock is interesting, with 9,100 calls and 600 puts traded in the name so far. December 20 calls, which are 13.6 percent out-of-the-money and expire in 31 days, are the most actives. 3,024 traded. The top trade is a 430-lot at the 20-cent asking price. December and January 19 calls on Avon are actively traded as well. Interest in upside calls comes after a tough stretch for Avon shareholders. The stock is down 24.4 percent since earnings were reported on 10/27. Today's options action seems to reflect expectations that shares will recover some of those losses in the weeks ahead.

One investor is showing interest in the long-dated call options on Heinz (HNZ) Tuesday. Shares are down 21 cents to $53.40 and the investor bought 13,000 January 2014 $75 calls on the stock for 55 cents per contract. 14,098 now traded. The contract expires in more than two years and is 40.4 percent out-of-the-money. The investor might expect shares to perform well in 2012 and 2013, but rather than buy the stock, they are locking in the right to buy or "call" the stock through January 2014. They're paying 55 cents ($55) per contract for the right to buy 100 shares at $75 each. Heinz might be worth watching later this week as well. The company is due to report earnings on November 18.

Bearish Flow
Puts on Frontier Communications (FTR) are busy for a second day. As noted in yesterday's closing report, January and February 5 puts were actively traded on the stock yesterday. Shares of the Stamford, CT telecomm services company are down 10 cents to $5.46 Tuesday and options volume is running 4X the daily average, with 11,000 puts and 395 calls traded on the stock so far. February 5 puts are the most actives in FTR today. 4,539 traded and 100 percent of the flow traded at the ask - suggesting buying interest. May and January 5 puts are the next most actives and implied volatility in options on the stock is up 12 percent to 47. Shares have already been battered in recent months and are down almost 40 percent since May. Today's order flow seems to reflect expectations for additional losses through early 2012.

Gamestop (GME) loses 75 cents to $23.89 and options volume on the stock is 3,000 puts and 1,270 calls through midday. The top trade is a November 24 - 23 put spread for 30 cents, 260X. In this spread, the investor bought 260 Nov 24 puts for 58 cents and sold 260 Nov 23 puts at 28 cents. Both lots traded on the ISE where data suggests that the spread was bought-to-open, 1000X total. If so, it's a short-term bearish play with a max payoff if the stock falls to $23 through the expiration, which is at the end of the week. Gamestop's earnings will come into play on November 17.

Unusual Volume
iShares Hong Kong Fund (EWH) options volume is running 9.5X the (22-day) average, with 68,000 contracts traded and call activity accounting for 52 percent of the volume.

DELL options volume is 2.5X the average daily, with 67,000 contracts traded and put volume representing 67 percent of the activity.

Home Depot (HD) options volume is running 2X the average daily, with 63,000 contracts traded and call volume representing 765percent of the total volume.

Increasing options activity is also being seen in AMR, Focus Media (FMCN), and Quicksilver Resources (KWK).

Implied Volatility Mover
Qihoo 360 Technology (QIHU) implied volatility is moving higher today. Shares of the Chinese Internet company have battled back from morning losses and are now up 97 cents to $20.44. Meanwhile, options volume in QIHU is 2.5X the daily average, with 8,760 puts and 2,790 calls traded in the name so far. Implied volatility in options on the stock is moving up 10.5 percent and is elevated at 106, as players set their sights on the company's earnings, which are due out tomorrow afternoon.

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