Cusick's Corner

This was a contrarian's day – Apple (AAPL) fought back into the last hour then gave that battle all back and more, but in spite of AAPL's pullback to $635, it's still rather hard to get bearish. This took the confidence out of the market and thus the bulls were again challenged into the close but this was not a move that signaled that the bulls were giving up. Financials, XLF, followed suit after a headline that Wells Fargo was slapped with a mortgage fraud lawsuit by the US Attorney. This action has its peers benefitting from the uncertainty in WFC, most notable MBI and MTG. Here's a plus -- Metals or more specifically Steel, X, AKS, were on the move to the upside which could be an interesting prelude to the Alcoa (AA) earnings out tonight. See you Midday.

Market Recap

Stock market averages extended losses in the afternoon session and closed near session lows Tuesday. With no economic data to guide the action, pre-earnings jitters were possibly affecting sentiment, as Dow component Alcoa (AA) unofficially kicked off the third quarter earnings reporting period after the closing bell today. The aluminum-maker reported a 3-cent per share profit for the quarter, which was 3 cents better than expectations and the stock is seeing a modest positive initial reaction to the results in extended hours trading. However, the flow of earnings releases doesn't really pick up momentum until next week. Meanwhile, Intel (INTC) slid 2.7percent --- the biggest loser in the Dow Jones Industrial Average and also weighed on the NASDAQ – after being hit with an analyst downgrade. Crude oil gained 3 percent on escalating tensions between Turkey and Syria, but gold lost $10 to $1765.5. Market averages were broadly lower across the Eurozone and the euro dropped another .7 percent to 1.288 on the dollar, as German Chancellor Merkel was greeted by angry protests on arrival to Greece for a meeting with Prime Minister Antonis Samaras. A tightening US Presidential race is perhaps adding to anxiety on Wall Street as well. At the end of the day, there wasn't much positive news flow to help the bulls. The Dow Jones Industrial Average shed 111 points and settled near session lows. The NASDAQ dropped 47.3.

Today's Bullish Trading

A number of coal names saw relative strength and bullish order flow despite weakness in the broader market Tuesday. Alpha Natural Resources (ANR), for example, was up 7.4 percent to $7.28 in active trading of 25 million shares. Meanwhile, 41,000 calls and 16,000 puts traded on the coal producer. Weekly 8 calls, which are now 9.9 percent out-of-the-money and expiring at the end of this week, were the most actives. 11,132 contracts traded. Weekly 7.5 and October 8 calls were the next most actives. In last week's Presidential debate, Governor Mitt Romney stated flat out, "And by the way, I like coal". Therefore, the recent interest in names in the coal space might reflect some of the recent changes in the polls related to the Presidential race.

Bullish trading was also seen in Console Energy (CNX), Arch Coal (ACI), and Peabody Energy (BTU)

Today's Bearish Trading

Yum Brands (YUM) might be a name worth watching Wednesday. The company, which owns KFC, Taco Bell, Pizza Hut and other brands, is due to report earnings after the closing bell today and trading in the options on the stock were busy ahead of the news. The stock was down 90 cents to $66.04 and players were hungry for YUM October 65 puts ahead of the news. The contract expires at the end of next week and is 1.6 percent out-of-the-money. More than 13,300 contracts traded against 13,570 in open interest. October 62.5 puts were the second most actives in the stock. More than 7,000 contracts changed hands. Total volume was 31,000 calls and 33,000 puts, which is 9X the daily average for the name. After the closing bell, the company was out with earnings of 99 cents per share on $3.57 billion in revenues. Analysts were expecting 97 cents on $3.64 billion. The stock is seeing a positive initial reaction to the report – up to $68.50 in the after hours.

Bearish trading was also seen in MetroPCS (PCS), William Sonoma (WSM), and RenRen (RENN).

Index Recap

Volatility picked up a bit Tuesday, but there were no signs of panic in the options order flow. In the index market, for example, 527,000 calls and 584,000 puts traded on the S&P 500 Index (.SPX), CBOE Volatility Index (.VIX) and other index products, which is only 80 percent the daily average volume for the index pits these days, according to Trade Alert data. SPX lost 14.40 points to 1,441.48 and VIX, which tracks the expected volatility priced into S&P 500 Index options, rose 1.26 to 16.37. Yet, given the overall volume totals, it doesn't seem that there's any real panic in the options market yet. Bearish sentiment is typically at an extreme when VIX spikes and a jump in SPX index put activity also accompanies the move higher in the volatility index.

Analyzing the ETF Market

The three most active options Friday were puts on the SPDR Financial ETF (XLF). Shares lost a dime to $15.95 and much of the flow was driven by a January 13 – 15 put spread that traded for 27 cents, 80000X. In this plain vanilla spread, the investor apparently bought 80,000 January 15 puts on the financial ETF for 35 cents and sold 80,000 of the January 13 puts at 8 cents. If opening, the position is a bearish one that makes its best profits if shares fall to $13 or less through the January 2013 expiration. More than 80,000 traded in both contracts, making them the two most actively traded options Tuesday. December 15 puts on XLF were today's third most actives. 71,568 contracts changed hands. At the end of the day, total volume in the financial ETF was about 81,000 calls and 294,000 puts.

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