DA BULLS. 10-14-2011

Cusick's Corner
This market is getting to a point of being heavy, overbought in nature. These types of markets are often prone to stay in that state, in this case over bought. With the pullback after the challenge of 1220 and pullback to 1210, I will be watching to see if the dip buyers come in this afternoon or if the "rest" factor kicks in. See you After Hours.

Stock market averages are holding gains with help from economic data and earnings news Friday. Google (GOOG) grabbed the spotlight after the closing bell Thursday after the Internet search giant posted stronger-than-expected third quarter earnings. GOOG is up $30.5 to $589.49 per share. On the economic front, a report showed Retail Sales up 1.1 percent in September. Economists were looking for an increase of .6 percent. The strong data, along with another day of steady trading across the Eurozone, helped set a positive tone for morning action on Wall Street. The Dow Jones Industrial Average opened higher and is up 84 points at midday. The tech-heavy NASDAQ added 24. CBOE Volatility Index (.VIX) is down 1.05 to 19.65. Overall options volume is running about the typical levels, with 4.8 million calls and 4.6 million puts traded across the exchanges through 12:30pm ET.

Bullish Flow
Akamai (AKAM) options are heavily traded for a second day. Volume picked up yesterday after the Business Insider published a report about the company late-Wednesday. According to the story, some people in the advertising industry believe that Google might be interested in making a bid for AKAM. Bloomberg was out with a story Thursday denying the speculation and Akamai shares are down 39 cents to $24.10 Friday. Still, options on the stock remain actively traded. 12,000 calls and 2,450 puts so far. October 25, 26, 27 and 28 calls, which expire at the end of next week, are the most actives. Some investors might be taking positions in these short-dated options on hopes for additional news on the M&A front in the days ahead.

Interesting trading activity surfaced in Sara Lee (SLE) longer-term options. Shares are up 16 cents to $17.67 and one strategist sold 4,650 January 2013 15 puts on the stock at $1.10 and bought 4,650 January 2013 20 puts at $1.20. 10 cents was paid for the bullish risk-reversal and the combo traded more than once. Volume in both contracts is more than 9100 and seems to be opening activity because volume easily exceeds open interest in both contracts. The bullish action in 2013 options on Sara Lee comes three days after Barclay's upgraded the stock to Outperform.

Bearish Flow
A massive options spread trades in the SPDR Financial Fund (XLF) Friday morning. XLF, which holds shares of the financial-related names from the S&P 500, is up 3 cents to $12.47. In early options action, one investor apparently bought more than 100,000 November 12 puts on the ETF at 44 cents and sold the same number of November 10 puts at 8 cents. 36 cents was paid for this Nov 12 - 10 bearish put spread. It appears to be a new position. Disappointing earnings from JP Morgan weighed down the financials yesterday. Today's put spread trader might be looking for additional losses early next week when BofA and Goldman Sachs report Tuesday.

Targacept (TRGT), a North Carolina-based biotechnology company, is down 28 cents to $17.05 and options volume on the stock is running 6X the daily average, being driven by a November 12.5 - 10 put spread. One player paid $1.10 about 2000X to buy the 12.5s and sell the 10s. The position looks like an opening trade because volume is more than existing open interest. If so, it's a bearish play and perhaps used to hedge risk around earnings. TRGT suffered steep losses in early-August when the company last released results.

Unusual Volume
iShares Japan Fund (EWJ) options volume is running 2X the (22-day) average, with 43,000 contracts traded and call activity accounting for 99 percent of the volume.

iShares Hong Kong Fund (EWH) options volume is 6X the average daily, with 44,000 contracts traded and call volume representing 71 percent of the activity.

VALE options volume is running 3.5X the average daily, with 108,000 contracts traded and call volume representing 87 percent of the total volume.

Increasing options activity is also being seen in Weatherford (WFT), Southwest Energy (SWN), and Walter Energy (WLT).

Implied Volatility Mover
Microchip Technology (MCHP) shares are under pressure and implied volatility in options on the stock is moving higher today. Shares are off $1.83 to $33.48 after the chipmaker warned late-Thursday of weaker-than-expected second quarter sales. Options volume in MCHP through midday is 7,530 puts and 1,145 calls, or about 6X the daily average for the name. October 33 puts, which are now 48 cents out-of-the-money and expiring in one week, are the most actives. 4,000 traded. Meanwhile, implied volatility in MCHP options is up 14 percent to 37 and among the big movers in the market Friday.