Opportunity 09-06-2011

Cusick's CornerOpportunity. Welcome to September with its wild swings and negativity at high levels. Gold experienced a 62 point range from the overnight highs and midday levels and the EU looks chaotic. It was quiet in the morning after the S&P's pulling back 30 on the open but this is where we step up in risk assets to take advantage of the volatility and a bounce. Interesting sectors include Financials/Tech/Energy where traders may be selling at the money puts, buying in the money calls and selling at the money. I am also looking at some names, not in anything at this moment, to place some Bullish Calendar spread where I am selling the Front month in the Money call and Buy the In the Money longer term option to take advantage of the volatility with this particular strategy. I want to see some strength into the After Hours.

Market Recap
The Dow Jones Industrial Average is trying to climb out of a hole midday Tuesday. Market volatility jumped on Wall Street after the three-day break after European stock market averages suffered steep losses Monday. While US markets were closed for Labor Day, stock markets fell 4 percent across the Eurozone on concerns about ongoing debt problems in Greece and Italy. In the US, some of the early focus is also on the financials after Federal Regulators filed lawsuits against seventeen major US banks related to soured mortgage securities. The economic news is light, but included a better-than-expected reading from the ISM Services Index. The gauge of economic activity outside of manufacturing rose to 53.3 in August, from 52.7 the month before. Economists were expecting a decline to 51. The data had little market impact, however, and the Dow Jones Industrial Average suffered a 307-point loss in morning trading. The Dow has since cut its loss to 207 points. The tech-heavy NASDAQ gave up 41. CBOE Volatility Index (.VIX) added 4.08 to 38. Overall options volume is not heavy, but reflects the bearish underlying sentiment. 4.9 million calls and 6.1 million puts traded across the exchanges through 11:30 central time.

This Morning's Bullish Trading
Temple Inland (TIN) shares surged after International Paper raised its bid to buy the paper company. IP is now offering $32 per share in cash. TIN gained $6.17 to $30.80 and options volume in the name through midday includes 22,000 calls and 13,000 puts. September 30 calls, which are now 80 cents in-the-money, are the most actives. 6,100 traded. Some investors might be liquidating positions and banking profits on the heels of today's news. September 31 calls, February 25 calls and February 30 calls are seeing interest as well. September 30 and October 21s are the most active puts in Temple Inland today.

AOL shares are up on positive broker commentary. According to Needham analysts, the stock is a buy because the company should be taken private and is worth $26 per share if all assets are liquidated. AOL is trading up 24 cents to $14.74 and October 15 calls are the most actives in the Internet company. 6,180 changed hands. The contract is 1.8 percent out-of-the-money and some investors might be taking bullish positions in the contract on hopes for some type of announcement before the October expiration, which is in 45 days.

This Morning's Bearish Trading
Coca Cola (KO) is down 67 cents to $69.07 and is one of twenty-nine Dow stocks under water through midday trading Tuesday. Pfizer (PFE) is the only component within the average to hold gains today. In Coca Cola options action, one strategist sold 20,000 January 70 calls on the beverage company at $2.70 per contract in morning trading. Open interest is 48,192 and so today's premium sale is possibly a liquidating trade. It's not necessarily a bearish play. The investor is simply giving up hopes for Coke shares to move beyond $70 through the January 2012 options expiration.

Puts on the Swiss Franc Spot Price Index (.XDS) are seeing interest today. The index, which tracks the Swiss Franc/US Dollar currency pair, sank 10.79 points to 116.13 after the Swiss National Bank imposed a ceiling on the currency to slow its recent surge. XDS is under pressure and options volume in the index includes 1,850 puts and 40 calls traded so far, which is about 4X the average daily for the product. December 123 puts, which are now 5.7 percent in-the-money, are the most actives. December 121 puts are seeing interest as well. Some investors are probably taking positions in the contract as a way to play further weakness in the Swiss currency (relative to the dollar).

Volume Signals
Harbin Electric (HRBN) options volume is running 3X the (22-day) average, with 108,000 contracts traded and put activity accounting for 57 percent of the volume.

Symantec (SYMC) options volume is 4X the average daily, with 26,000 contracts traded and call volume representing 99 percent of the activity.

Atmel (ATML) options volume is running 5X the average daily, with 25,000 contracts traded and call volume representing 99 percent of the total volume.

Increasing options activity is also being seen in SLM, Deutsche Bank (DB), and Verisign (VRSN).

Volatility Alerts
JP Morgan (JPM) implied volatility is higher today on concerns about the spreading European Debt Crisis and after the Federal Housing Financing Agency filed 17 lawsuits against major US banks. JP Morgan is down 3.8 percent to $33.30 and the second biggest loser in the Dow Jones Industrial Average through midday. Options action in the bank is brisk. 43,000 calls and 59,000 puts traded so far. Implied vols jumped about 20 percent to 55.