Chop Chop 09-01-2011

Cusick's Corner
The market has been flexing all over the place this midday. The early data was not eye catching -- Claims were in line and still in recovery levels of below 410K, plus the ISM was better than expected. The move after the ISM, a swing to almost new day highs and a fall right back down to opening levels, shows the thinness of the market. In the commodities market, Copper, JJC, fell after China reported lower exports. Copper is a decent barometer of infrastructure growth so this will need to be monitored. In Finance, the Goldman heading of enforcement action is weighing on the stock, down $4 at the time of the writing, plus Financials, XLF, are on the lows and are keeping the market down at this stage. The chop will continue into the close and in front of the employment number tomorrow. See you After Hours.

The first trading day of September is a very quiet trading session so far. Economic data was in focus early after the Labor Department reported that filings for jobless benefits declined by 12,000 to 409,000 last week. Economists were expecting a drop of 14,000 and the in-line data comes the day before key monthly job stats are released. Economists expect Friday's report to show the US economy adding 100,000 jobs in August and the unemployment rate holding steady at 9.1 percent. Other data today was the latest ISM Manufacturing Index for August, which edged down to 50.6 from 50.9 in July and better than the 48.5 that was expected. Construction spending fell 1.3 percent in July, however. Economists were looking for a decline of .1 percent. Meanwhile, the auto makers are in focus after Detroit's Big Three posted August sales numbers. Ford (F) shares are steady, but GM is down on the heels of the results. Investors also digested the latest same store sales numbers from major retailers. Macy's (M) and Costco (COST) are among the names moving higher on the results. Overall, trading has been very quiet through midday despite the heavy news flow. The Dow Jones Industrial Average has traded in a 150-point range and is down 10 points. The tech-heavy NASDAQ lost 4. CBOE Volatility Index (.VIX) slipped .66 to 30.96. Options volume is very light, with 3.7 million calls and 3.8 million puts traded across the exchanges through 12:30pm ET.

Bullish Flow
Cisco Systems (CSCO) is up 1 percent to $15.83 and the best gainer among the thirteen Dow stocks moving higher through midday Thursday. Meanwhile, 65,000 calls and 27,000 puts traded on the networking giant so far. September 16 calls, which are now 1.1 percent out-of-the-money and expiring in 15 days, are the most actives. Volume is approaching 20,000 and, with 81 percent of the volume trading at the ask, it appears that buyers are driving the flow. September 17 calls are seeing heavy trading as well. Cisco shares hit a 52-week low of $13.3 on August 9, the day before the company reported earnings. Shares rallied 16 percent on August 11 after the results were released. Since that time, shares have traded mostly sideways in a narrow range. Today's call buyers seem to be taking positions on expectations CSCO will break out of its range and move higher in the short-term. Since Monday is a holiday, only ten trading days remain (after today) before the September expiration.

Strong earnings from Ciena (CIEN) might be one reason for the optimism in Cisco today. The networking company reported a quarterly profit of 8 cents per share. Analysts were expecting a 9-cent loss. Shares are up $2.31 to $14.55 on the news and options volume is 2.5X the average daily for the name. 21,000 calls and 19,000 puts traded in Ciena so far. September 14 puts, which are now 55 cents out-of-the-money, are the most actives. 5,280 have traded and, with 60 percent of the volume trading on the bid, some investors are likely selling premium on the day's news. Implied volatility in the options on the stock is down 29 percent to 69.

Bearish Flow
An interesting trade surfaces in Research In Motion Thursday morning. Shares are up a nickel to $32.54 and 9,200 September 29 puts traded on the mobile-device maker at 91 cents per contract and 9,200 October 42 calls traded at 64 cents per contract. The puts were bought, calls sold and this might be a "collar" trade. That is, a shareholder is selling upside calls to help pay for downside put protection. In this case, October calls are sold to buy September puts, which might be designed to hedge shares over the next two weeks and into a September 15 earnings release. RIMM shares have surged nearly 50 percent since August 8.

The top options trade on a slow day of market action Thursday is a block of 40,000 January 10 puts on the SPDR Financial ETF (XLF). Shares have lost 12 cents to $13.26 and the investor paid 32 cents per contract for the position. While it's possibly a closing traded because open interest in the Jan 10 put on the ETF is more than 147,000, the investor is probably buying the contract on concerns about losses in the financials from now through mid-January 2012. XLF, which holds all of the financial-related names from the S&P 500, is up 12.3 percent from the 52-week low of $11.81 set on August 23, but down 13.7 percent since July 21. The Jan $10 put is almost 25 percent out-of-the-money.

Unusual Volume
Ciena (CIEN) options volume is running 2.5X the (22-day) average, with 39,000 contracts traded and call activity accounting for 53 percent of the volume.

Bank of New York (BK) options volume is 5X the average daily, with 44,000 contracts traded and call volume representing 59 percent of the activity.

Alcatel Lucent (ALU) options volume is running 4X the average daily, with 46,000 contracts traded and call volume representing 67 percent of the total volume.

Increasing options activity is also being seen in Nabors Industries (NBR), DISH Networks (DISH), and Lexmark (LXK).

Implied Volatility Mover
Implied volatility in Bank of New York Mellon (BK) is higher after the bank's CEO Rob Kelly abruptly announced his resignation. Shares fell on the news in morning trading, but were recently up 36 cents to $21.03. Options volume is running 5X the average daily for the bank. 27,000 calls and 19,000 puts traded in Bank of New York so far. Trading is brisk in September 22 and 23 puts and calls. Meanwhile, implied vols jumped 10 percent to 44 amid the heavy trading in BK options today.