Watching the GIIPS 09-13-2011

Cusick's Corner
This is one of those markets that's a headline away from being north or south. The EU is playing a game of who will be allowed to fail or not (sounds so 2008) but the great part of that scenario, if there is one, we have seen that movie before. The Banks at this stage are better capitalized and have the backing of every major government. Geithner is lobbying the Germans as I write, so if and when this happens, Financials will be the benefactor (full disclosure I am positioned in Goldman Sachs). This is a market that is heavily short and technically bearish but the reality is the violent move that most veteran traders have on the radar is to the upside, and cyclically speaking if the upside is in play, the sectors that you want to be watching and strategizing are the Financials and Tech, specifically Semis, SMH. See you After Hours.

Market action is mixed in cautious trading midday. The table was set for steady trading on Wall Street after European markets traded higher and after an analyst upgraded shares of JP Morgan. On the heels of the steep losses suffered Monday, France's CAC 40 Index gained 1.2 percent, Germany's DAX rose 1.5 percent, and Spain's IBEX added 2.5 percent. Meanwhile, JP Morgan is up 1 percent and one of 17 Dow stocks trading higher after Stifel Nicolaus upgraded the stock to Buy and said shares are currently undervalued. However, Dow components Walmart (WMT), Exxon Mobile (XOM), and 3M (MMM) are seeing relative weakness and the industrial average is down 16 points. The tech-heavy NASDAQ has added 16 points. CBOE Volatility Index (.VIX) edged down .27 to 38.32 amid slow trading in the options market. 3.8 million calls and 4.3 million puts traded across the exchanges through 12:30pm ET.

Bullish Flow
Cisco Systems (CSCO) is flat at $16.10 and options action is focused on September 16 call options on the networking giant. 31,595 contracts traded, including a morning buyer of 8,500 contracts at 28 cents each. The September 16 call on Cisco is ten cents in-the-money and expires at the end of the week. The company is hosting its annual Analyst Day Tuesday. The event kicked off this morning with a presentation from John Chambers and continues through this afternoon. Some investors might be taking bullish positions in short-term call options contracts in Cisco on hopes the company will say something positive about business strategy or its outlook during the Analyst Day.
Office Depot (ODP) shares have added 9 cents to $2.40 and options volume is running 3X the daily average for the office supplies retailer. 6,600 calls and 720 puts traded in the name through midday. September 2.5 calls are the most actives. 3,444 traded and 89 percent of the volume hit at the ask, indicating buying interest. October 2.5 calls have traded 2,000 contracts and volume in the October 3 calls is 1,050. There's no news on the stock Tuesday. Some investors might be buying upside calls and bottom-fishing in ODP after a 55.6 percent plunge in the share price in 2011.

Bearish Flow
Qlik Technologies (QLIK), a business software developer, is trading down $1.15 to $21.75 after Morgan Stanley downgraded the stock to Equalweight. The stock is under pressure and investors are active in QLIK September 22 call options, which expire at the end of the week. 5,200 contracts traded against only 53 contracts of open interest. The top trade is a 450-lot at 55 cents when the market was 55 to 60 cents. 57 percent of the total volume in the Sep 22 call on QLIK has traded on the bid. Some investors are likely selling the calls on the downgrade - betting that shares won't hold above $22 through the expiration and the contract will expire worthless.

Western Refining (WNR) has come under pressure Tuesday morning and is trading down $1 to $15.89. Options volume is running 2.5X the daily average. 9,390 puts and 1,000 calls traded on the oil refiner through midday. September 17 puts, which are now $1.11 in-the-money, are the most actives. 4,415 traded, including a 1300-contract block this morning at the 85-cent asking price. Open interest is 2,311 and so some of today's flow in the contract looks opening. October 15 puts are apparently being bought-to-open as well. No news to explain the relative weakness and put activity in WNR today. Some shareholders might be buying puts to hedge the risk of additional downside the stock, which is down 21.9 percent since July.

Unusual Volume
SilverCorp Metals (SVM) options volume is running 4X the (22-day) average, with 84,000 contracts traded and put activity accounting for 66 percent of the volume.

Mosaic (MOS) options volume is 2X the average daily, with 58,000 contracts traded and call volume representing 90 percent of the activity.

Best Buy (BBY) options volume is running 3.5X the average daily, with 50,000 contracts traded and put volume representing 61 percent of the total volume.

Increasing options activity is also being seen in Delta Airlines (DAL), Adobe (ADBE) and Deutsche Bank (DB).

Implied Volatility Mover
SilverCorp Metals (SVM) implied volatility is up, as shares trade down to new 52-week lows today. SVM hit $6.26 and is down $1.32 to $6.52 after a negative article about the company was posted on the Alfred Little blog. Options on the Vancouver-based miner are seeing heavy trading as well, with 66,000 puts and 35,000 calls traded in the name so far. September 6 and 7 puts are the most actives. Meanwhile, implied volatility in options on the stock is up another 17 percent and elevated at 195.