He Said, She Said - Sarkozy & Merkel 09-14-2011

Cusick's Corner
"They are meeting, no they're not , yes they are," all referring to the German-French-US meeting, today's headlines have been driving the close in the EU and pushing US markets to the highs of the day. The market has hit stiff resistance, 1180 on the S&Ps, so the upside is in play but there is nothing concrete about the EU and solutions, add to the fact we have options expiration and traders will start to make adjustments as Thursday and Friday closes in on us. I think that today and tomorrow you need to have a game plan, whether it is rolls or close outs, these exit strategies need to be in motion. Do not wait until Thursday or Friday. See you After Hours.

Stock market averages opened steady and are holding modest gains midday. Steady trading across the Eurozone helped set a positive tone for morning trading on Wall Street. Germany's DAX helped pace the advance and gained 3.4 percent ahead of a teleconference between French, German and Greek officials intended to help avoid a default by Greece. On the domestic economic front, data showed the Producer Price Index [PPI] unchanged in August, which was in-line with expectations, and business inventories rose .4 percent in July, and also as-expected. However, Retail Sales were flat last month. Economists had predicted an increase of .2 percent. Meanwhile, crude oil lost $1.25 to $88.96 on bearish inventory data and Dell Computer (DELL) is in the spotlight after announcing plans to increase its stock buyback program by $5 billion. Overall, the news flow has failed to trigger much volatility so far today. The Dow Jones Industrial Average is up 42 points and the tech-heavy NASDAQ has added 21.5 points. CBOE Volatility Index (.VIX) lost 1.4 to 35.51 amid slow trading in the options market. 4.2 million calls and 4.3 million puts traded across the exchanges through 12:30pm ET.

Bullish Flow
Calls on Yahoo (YHOO) are actively traded today. Shares have added 25 cents to $14.51 ahead of a company meeting to discuss new executive leadership at the company. Yahoo was in the spotlight last week after the Internet giant ousted CEO Carol Bartz. Players in the options market have been active in Yahoo since that time in anticipation of the stock's next potential move. 103,000 calls and 18,000 puts have already traded in the name today. September 15 calls, which are 3.4 percent out-of-the-money and expiring at the end of the week, are the most actives. 22,300 traded. October 16 and 17 calls on Yahoo are seeing brisk trading as well.

United Continental (UAL) shares have had a good week. Shares rallied 7.4 percent yesterday after the company updated its capacity plans at a Deutsche Bank conference. UAL is up 44 cents to $19.72 today and on a three-day 11.2 percent run higher. Today's options volume in the airliner is 3X the daily average, with 28,000 calls and 6,060 puts traded on the ticker so far. September 20 calls, which are 28 cents out-of-the-money and expire in three days, are the most actives. 20,265 contracts have changed hands so far.

Bearish Flow
Freeport McMoran (FCX) loses 54 cents to $41.46 and options volume on the copper and gold miner is running 2X the daily average. 62,000 puts and 39,000 calls traded in the name so far. The top trade is a spread, in which the strategist apparently bought 10,000 October 40 puts at $2.25 and sold 10,000 September 43 puts at $1.81. In other words, they initiated a Sep 43 - Oct 40 put spread for a 36-cent net debit and are possibly rolling a bearish position, or hedge, out one month and from in-the-money to out-of-the-money puts. The spread has traded 21000X so far.

First Solar (FSLR) sees interesting spread trading today. Shares are down 51 cents to $90.41 and one strategist apparently sold the October 65 - 70 put spread on FLSR at 50 cents and sold the October 90 - 95 call spread at $2. In other words, they initiated an Oct 65 - 70 - 90 - 95 iron condor for a $2.50 net credit. The trade can be viewed as selling an Oct 70 - 90 strangle and buying the Oct 65 - 95 strangle as a hedge. It's not necessarily a bearish play, but a bet that shares will hold between 70 and 90 through the October expiration.

Unusual Volume
SPDR Basic Materials ETF (XLB) options volume is running 3X the (22-day) average, with 96,000 contracts traded and put activity accounting for 93 percent of the volume.

SiverCorp Metals (SVM) options volume is 2.5X the average daily, with 65,000 contracts traded and call volume representing 53 percent of the activity.

Ciena (CIEN) options volume is running 2.5X the average daily, with 45,000 contracts traded and call volume representing 88 percent of the total volume.

Increasing options activity is also being seen in Virgin Media (VMED), Blackstone (BX), and Staples (SPLS)

Implied Volatility Mover
Longer-dated puts on the iPath VIX Short-term Futures Fund (VXX) are seeing interest today. Shares, which are designed to track market volatility through VIX futures contracts, have been ripping higher in August and September. VXX is up 93 percent since July. However, shares are down 65 cents to $45.19 today and on a two-day 9.1 percent losing skid. Options trades in the ETF today include a 40,000-contract block of January2013 30 puts at $6.65 per contract, which looks like a buyer bracing for additional losses in the ETF and falling levels of market volatility through January 2013.