Fast & Furious 09-28-2011

Cusick's Corner
I want to apologize; I have been running behind primarily due to this market action which has been fast and furious. Into the midday and early afternoon this action has been to the downside with sentiment shifting to very bearish, highlighted by the Downgrade with the financial space. I take this as a potential contrarian stance but one issue I have is that the market did not break the ceiling formed yesterday, 1185 on the S&P futures and this is a technical sign of weakness in the market and the midday momentum to the downside is confirming the downside strength. Right now I have an expected move of about 2.5%, so volatility is still very present, moves may have velocity both to the upside and down. See you After Hours.

Stocks are trading mixed and market action is sluggish Wednesday. After two days of gains, trading on Wall Street was off to a slow start after data showed orders for Durable Goods falling .1 percent in August. Economists were looking for an increase of .1 percent. Meanwhile, crude oil prices are giving back some of the big gains recorded yesterday on bearish weekly inventory data. Crude oil lost $2 to $82.45 per barrel. Similarly, stock market averages finished modestly lower across the Eurozone after solid gains the day before. However, the euro edged up .3 percent against the dollar. Beyond that, it's been a relatively slow news day. Through midday, the Dow Jones Industrial Average is flat and the tech-heavy NASDAQ has lost 10 points. CBOE Volatility Index (.VIX) edged up .76 to 38.47. Overall options volume is light and sentiment seems a bit cautious today, with 3.1 million calls and 3.7 million puts traded across the exchanges through 12:45pm ET.

Bullish Flow
Amazon.com (AMZN) is seeing relative strength and high options volume today after the online retailer unveiled details of its new Kindle Fire - which is a touch screen color tablet. At $199 apiece, the product is expected to take away some market share from the Apple's iPad, which starts at $499. AMZN is up $9.89 to $234.10 through midday on the announcement. Options volume on the stock is 52,000 calls and 47,000 puts, or more than double the typical daily volume for AMZN through midday. Most of the focus is on the weekly options that expire Friday. Weekly (9/30)230 puts, 235 calls, and 240 calls are the most actives, as players jockey for position in anticipation of Amazon's next short-term move.

Barrick Gold (ABX) shares are down 90 cents to $46.74 after gold prices lost $21 to $1629.60 an ounce. Meanwhile, options volume in the largest publicly-traded gold miner by market value includes 28,000 calls and 7,380 puts. The top trade of the day is an 8,568-contract block of Jan 60 calls at 90 cents. The market is now 80 to 83 cents and it appears that a buyer initiated the trade. 12,654 Jan 60 calls now traded in Barrick against 34,374 in open interest. The contract is 28.4 percent out-of-the-money and so the call buying might be closing activity. Or, it's possibly new positions and a bet that shares will recapture recent losses through early 2012. ABX was trading at a 52-week high of $55.95 less than three weeks ago.

Bearish Flow
Powershares Commodity ETF (DBC), which tracks the price action of various commodities like wheat, oil, and gold, is down 43 cents to $26.66. Options volume is running 5X the daily average for the product. The bulk of the volume is in the January 20 puts, which are 25 percent out-of-the-money and expiring in 114 days. 10,600 traded against 296 in open interest. The top trade is a block of 7370 contracts at the 25-cent asking price. Looks like an opening put buyer and perhaps a bet that a weakening global economy will take a toll on commodities prices in the months ahead.

Sandisk (SNDK) is down 92 cents to $42.31 and options volume on the storage device maker is 19,000 puts and 3,600 calls. The top trades of the day are part of a spread, in which the strategist bought 6,500 Oct 40 puts on the stock at $1.33 and sold 6,500 Oct 37 puts at 63 cents. In other words, an October 40 - 37 put spread was initiated for a 70-cent net debit. If opening, it represents a bearish play with a max payoff if shares fall to $37 or less through the October expiration, which represents a 12.6 percent decline in 23 days.

Unusual Volume
iShares Hong Kong Fund (EWH) options volume is running 7X the (22-day) average, with 25,000 contracts traded and call activity accounting for 50 percent of the volume.

Interoil (IOC) options volume is 4X the average daily, with 19,000 contracts traded and put volume representing 53 percent of the activity.

iShares Taiwan Fund (EWT) options volume is running 3X the average daily, with 16,000 contracts traded and put volume representing 96 percent of the total volume.

Increasing options activity is also being seen in Mattel (MAT), Jabil Circuits (JBL), and International Game Technologies (IGT).

Implied Volatility Mover
Interoil (IOC) implied volatility is on the move after the Papua New Guinea government told the Australian oil and gas refiner to revise plans for a natural gas project. Shares hit a new 52-week low today. The stock is off $4.61 to $41.22 and has now lost 25.2 percent in just two days! Trading in IOC options is also active. 10,000 puts and 9,250 calls traded on the stock so far. Meanwhile, implied volatility in options on IOC is up 13 percent and elevated at 113.