The Quest for 1200 10-11-2011

Cusick's Corner
The quest for 1200 - that's the last high we saw in September on the S&Ps. This market has been amazing with a 12% run in 5 days and today the market has held up in spite of Trichet's "systemic" comments overnight. This steep drop in volatility is confirming the low volume melt up. If this continues through critical resistance (I stated this in past Corners), scared under-invested monies specifically from equities managers, could be forced into this market for fear of missing the next leg higher and under performing their benchmark. I am also watching the pullback in the Dollar, UUP; spec trade has been heavy in the buck from the long side and may be weakening. See you After Hours.

Market action is mixed on a relatively slow day of trading Tuesday. With no economic data to guide the morning action, the Dow Jones Industrial Average slid at the open after a 330-piont surge the day before. There wasn't much news from overseas and, while the euro gave back some of yesterday's 2 percent gain against the dollar, stock market averages finished little changed across the Eurozone. In the US, the tone of trading has a wait-and-see feel ahead of Alcoa's (AA) earnings. The Dow component unofficially kicks off the earnings reporting season after the closing bell Tuesday. Until then, there isn't a lot of news to guide trading and the industrial average is down 22 points at midday. However, the tech-heavy NASDAQ added 7 points. CBOE Volatility Index (.VIX) edged up .37 to 33.39. Overall options volume is light, with 3.7 million calls and 4.2 million puts traded across the exchanges through 12:40pm ET.

Bullish Flow
Genworth (GNW) options are heavily traded for a second day. 7,390 calls and 500 puts traded on the Richmond, VA surety ant title insurance company Monday. Shares are up 17 cents to $5.62 and options volume is running 4X the daily average. 16,000 calls and 800 puts traded on the stock so far. October 6 calls, which are now 6.8 percent OTM and expiring at the end of next week, are the most actives. Volume is approaching 10,000. November 6 and 7 calls on Genworth are seeing interest as well. There's takeover speculation in the name. It's unsubstantiated market chatter, but seems to be the catalyst for the increased options activity and higher implied volatility in GNW. IV in Genworth options is up 7 percent and elevated at 96.

The largest options trades so far today are in the iShares Emerging Markets Fund (EEM). Shares are down 16 cents to $37.91 and an October 36 - 39 put spread was sold on the ETF at $1.11, 76000X. The strategist sold 76,000 October 39 puts at $1.43 and bought 76,000 October 36 puts at 32 cents. The massive spread traded on the International Securities Exchange [ISE], where data indicate a closing trade. The strategist is possibly exiting a bearish position or hedge on the view that the worst is over for the global equity markets in the short-term.

Bearish Flow
Options on the CBOE Volatility Index (.VIX) are heavily traded through midday Tuesday. VIX has added .32 to 33.34, but is down 26.6 percent since last Monday. Meanwhile, 337,000 puts and 115,000 calls traded on the product. The top trade is a 55,000-contract block of November 25 puts, which traded for 40 cents when the market was 30 to 45 cents. 137,000 November 25 puts have now traded on the volatility index. VIX October 32.5, January 25, and October 35 puts are seeing heavy trading as well. The high volume in VIX puts is interesting, as it seems to reflect some investor expectations that the volatility index will drift lower in the weeks ahead.

STEC, a Santa Ana, CA storage device company, is down and options volume is picking up today. Shares are off 17 cents to $10.76 and the options flow includes 9,230 puts and 900 calls through midday - a ratio of more than ten-to-one. November 11 puts, which are now 24 cents in-the-money and expiring in 38 days, are the most actives. 4,320 traded. November 8, November 10, and January 10 puts are the next most actives. No news on the stock today, but implied volatility in options on the stock is up 8.5 percent to 66 - as some investors seem to be bracing for a possible dip in STEC shares in the weeks ahead.

Unusual Volume
Marvell Tech (MRVL) options volume is running 2X the (22-day) average, with 59,000 contracts traded and put activity accounting for 79 percent of the volume.

Juniper Networks (JNPR) options volume is 2X the average daily, with 29,000 contracts traded and call volume representing 50 percent of the activity.

Plains Exploration (PXP) options volume is running 5X the average daily, with 33,000 contracts traded and call volume representing 65 percent of the total volume.

Increasing options activity is also being seen in Harmony Gold (HMY), Brocade (BRCD), and the Dow Jones Industrial Index (.DJX).

Implied Volatility Mover
Implied volatility in Marvell Technology (MRVL) is moving up amid high options volume today. Shares are off 28 cents to $15.39 and 59,000 options contracts have traded on the chipmaker so far, which is more than double the daily average. 12,000 calls and 47,000 puts changed hands. November 14 and 15 puts are the most actives, with 17.8K and 12.5K traded, respectively. The bearish trading comes on no news, but has driven up implied vols on MRVL options up 10 percent to 47.5. It might be a play on earnings, due mid-November.