Cusick's Corner

The market has been orderly and for the bulls this is the action they need to see continue. We had a test overnight of the lows, 1211 on the S&Ps, which held and is now trading at the highs of the session, 1224. Expiration has been quiet and I believe we could have potentially choppy action going into the close as strategists clean up any remaining Dec risk. Here's one exercise that I did this morning going into next week -- I screened the market for stocks that have had swings in volatility and were on the docket for earnings next week using the Dragon. I used the Ratios of high Historic/Implied and high IV/HV, and there were some interesting names that popped up (like BBBY,WAG) that now I can potentially use as idea candidates going into next week that have a statistical chance of potentially moving outside of their historical norm. See you After Hours.

Market Recap

Stock market averages opened higher, but trading has turned mixed on expiration Friday. The only economic stat of the day was the Consumer Price Index [CPI], which was unchanged in November. Economists were expecting an increase of .1 percent and the low reading from the gauge of inflation at the consumer level seems to confirm that inflationary pressures have been subsiding. Meanwhile, trading was steady across European equity markets and a modest rebound in the euro seemed to help sentiment on Wall Street as well. However, early gains were pared and market action has turned a bit choppy through midday. There doesn't seem to be one specific catalyst for the late-morning market decline. Crude oil erased early gains and is down 96 cents to $92.91 per barrel. The Quarterly "quadruple witch" options expiration might be affecting market action as well. The Dow Jones Industrial Average is now down 30 points and 129 points off session highs. The NASDAQ is up 11.4 points. CBOE Volatility Index (.VIX) edged down .38 to 24.73. Overall options volume is respectable, with 4.7 million calls and 5 million puts traded through 12:35pm ET.

This Morning's Bullish Trading

A couple of the airline names are seeing bullish trading today. Delta (DAL) shares gained 36 cents to $8.95 and options volume on the airliner is 47,000 calls/10,000 puts. The top trade is an apparent roll of call options ahead of the expiration, as 4,900 December 8 calls traded on the 98-cent bid while 4,900 January 9 calls traded at the 58-cent asking price. The spread, for a 40-cent credit, probably extends a bullish play on Delta for another month. Shares have rallied 20.5 percent since peer AMR filed for bankruptcy protection on November 29. Falling crude oil prices, which helps lower jet fuel costs, seems to be helping lift shares of the airliners in recent days as well. The roll of calls, from in-the-money to at-the-money options, is probably a bet that the rally in the sector will continue over the next five weeks. January options expire in 35 days.

Meanwhile, US Airways (LCC) is up 38 cents to $6.09 and has rallied 52.3 percent since November 23. Options volume on the airliner includes about 16,000 calls and 1,200 puts. December 6 calls, which are 9 cents in-the-money heading into the expiration, are the most actives. 5,600 traded. January 6, March 7, and January 2014 10 calls are actively traded as well. Some players are likely closing out positions in the expiring December contracts and rolling to new positions in upside calls in more distant expiration months.

This Morning's Bearish Trading

Research In Motion (RIMM) is reeling today. Shares lost $1.87 to $13.26 and fell to their lowest levels since 2004 after the Blackberry-maker reported disappointing earnings results after the close of trading Thursday. Options volume surged to 4X the daily average. 278,000 puts and 150,000 calls traded in RIM so far. The top trade is part of a spread, in which the strategist sold 33,700 January 15 puts on the stock at $2 and bought 41,000 January $13 puts for 88 cents. This appear sto be a roll. That is, the investor is closing out a position in $15 puts after the recent decline in the stock. They are now bracing for additional losses in RIM and opening a new position in the out-of-the-money Jan $13 calls.

Lender Processing Services (LPS) came under pressure Thursday morning and is down $1.73 to $15.61 on news Nevada's Attorney General has filed a suit against the company alleging customer fraud. The stock is taking a hit on the news and options volume in LPS is running 22X the daily average. 11,000 puts and 5,200 calls traded in the name so far. The top trades look like a bearish combo, in which the strategist apparently sold 4,250 March 18 calls at 80 cents and bought 4,250 March 14 puts for $1.55. The position looks opening and is possibly a "collar" to hedge a position in shares.

Implied Volatility Mover

Adobe Systems (ADBE) implied volatility is easing today after the company reported better-than-expected earnings after the close of trading yesterday. Shares are up $1.71 to $28.17 and options volume on the stock is running 3X the daily average. 22,000 calls and 8,085 puts traded in the name so far. Some players are likely liquidating positions on the heels of today's move, as implied volatility in the options on the stock is down 21 percent to 29.

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