Markets Melt Up & Down 08-19-2011

Cusick's Corner
Markets melt up and markets melt down. The morning had a small reversal, markets were up but now they are down small and 1100 on the S&Ps looks in sight. Many traders do not want to go home with positions into the weekend so they may be covering positions, plus it is Expiration Friday so we could see some volatility in the final hour. See you After Hours.

Stock market averages wavered in and out of positive territory and trading has turned mixed through midday Friday. With no economic data on the docket and a light earnings calendar, some of the focus remains on Europe, where market averages are down for a second day. After a 5.8 percent plunge Thursday, Germany's DAX lost another 2 percent France's CAC 40, Spain's IBEX, and UK's FTSE remain under pressure as well. Sharp losses across the Eurozone set the table for another day of cautious trading on Wall Street. However, the euro is up .5 percent against the dollar and gains are being seen in some key commodities as well. Crude oil gained 82 cents to $83.33 per barrel. Gold surged $26.9 and continues to move to new record levels. Meanwhile, the Dow Jones Industrial Average has seesawed back and forth and is down 51 points through midday. The tech-heavy NASDAQ is up 3.3 points. CBOE Volatility Index (.VIX) eased .70 to 41.97. Options trading is active due to the August options expiration, with about 5.9 million calls and 7.7 million puts traded across the exchanges through 12:30pm ET.

Bullish Flow
Clearwire (CLWR) shares rallied 70 cents to $3.01 after Bloomberg reported that Sprint is in talks with cable companies about possible investments and the talks could pave the way for an acquisition of Sprint partner Clearwire. Shares are rallying on the report and options volume in CLWR includes 14,000 calls and 2,330 puts. Typical volume through midday is about 4,100 contracts. September 4 calls, which are now 99 cents or 33 percent out-of-the-money, are the most actives. 3,430 traded. August 2, August 3, September 3 and September 5 calls on Clearwire are actively traded as well. Implied volatility in CLWR OTIONS is up 10 percent to 167, as some investors are apparently taking positions in the options on the wireless company on hopes for some sort of takeover announcement.

Silicon Graphics (SGI) shares surged $3.62 to $15.55 after the computer systems company reported earnings that topped Street estimates and also issued upside guidance for the future quarter. Trading in SGI options is brisk. 7,200 calls and 1,040 puts traded in the name so far, which is 8X the average daily. While some investors appear to be closing out bullish positions in August 11 and 13 calls, which are in-the-money and are the most actives, others appear to be opening new positions in out-of-the-money December 16 calls. The top trade is a 500-contract lot of Dec 16 calls at the $2.45 asking price.

Bearish Flow
Aeropostale (ARO) shares are falling to new 52-week lows and are down $1.77 to $10.72 after the teen apparel retailer reported slightly better-than-expected second quarter results, but then guided estimates lower for the third quarter. Shares are under pressure and options volume in the name is 6,160 puts/1,475 calls. August 13 puts, which are now 17.5 percent in-the-money and set to expire after today, are the most actives. Some investors are likely closing out positions on today's weakness in ARO shares. August 11, August 12, September 11 and September 10 puts are seeing interest as well.

Large put spread trades in the SPDR Gold Fund (GLD) Friday morning. Shares are up $2.65 to $180.37 and ran to new highs after the yellow metal gained another $26.9 to $1,846.8 an ounce. In morning options trading, one investor apparently bought 22,000 September 178 puts on GLD at $4.05 per contract and sold 22,000 September 165 puts at 80 cents. In other words, they paid $3.25 for the Sep 178 - 165 put spread and appear to be looking for a pullback in the metal through the September expiration, which is in four weeks. The breakeven on the spread (excluding commissions) at expiration is at $174.75 and 3.1 percent below current levels.

Unusual Volume
Hewlett Packard (HPQ) options volume is running 3.5X the (22-day) average, with 173,000 contracts traded and call activity accounting for 57 percent of the volume.

News Corp. (NWSA) options volume is 5X the average daily, with 124,000 contracts traded and call volume representing 93 percent of the activity.

Lennar (LEN) options volume is running 3X the average daily, with 29,000 contracts traded and put volume representing 78 percent of the total volume.

Increasing options activity is also being seen in Best Buy (BBY), Deutsche Bank (DB), and Clearwire (CLWR)

Implied Volatility Mover
Marvell Technology (MRVL) options are busy and implied volatility in the options on the chipmaker is easing today. Shares rallied 90 cents to $12.87 after the company reported better-than-expected second quarter earnings results. Options volume in MRVL through midday includes 27,000 calls and 18,000 puts. By way of comparison, typical total volume through midday is about 20,000 contracts. September 14 puts and calls are the most actives. November 15 puts and calls are busy as well. Meanwhile, implied volatility has eased 30.5 percent to 59 now that the earnings event risk has passed.