Cusick's Corner

A cheap buck, UUP, has the bears on the run and the bulls starting to chase. It's now cheaper for the EU to get liquidity because the Fed cut rates on dollars they lend to EU banks in exchange for their currency. This could be a solution if you are on the side of the fence that believes that most of the problems were due to liquidity. But if the issue is one of solvency, then this cheaper liquidity might be only be kicking the proverbial debt can a little further down the road before we will have to clean it up. Any weakness in the Euro, FXE, could be a potential clue that liquidity was not the issue but in fact the ability to pay on debt is. We are challenging the 1235-1240 levels on the S&Ps, which is a retracement of almost 62% off the November low (1147.50 on the S&Ps). See you After Hours.

Market Recap

Stocks are rallying around news of Central Bank intervention Wednesday. While China announced that it has lowered its bank required reserve ratio, European Central Banks and the Federal Reserve agreed to increase swap lines that will allow additional dollars to flow through the banking system. The pledges of liquidity helped spur a massive rally at the open and domestic economic data helped as well. ADP reported that the economy added 206,000 new jobs in November, which was 81,000 more than expected. Chicago's PMI Index jumped to 62.6 in November, from 58.4 last month and also better than the 57.5 that was expected. Meanwhile, a third report showed Pending Home Sales up 10.4 percent in September and about 10 percent more than was predicted. The Dow Jones Industrials surged at the open and are holding the gains through midday. The Dow is up 420 points and the NASDAQ gained 88 points. CBOE Volatility Index (.VIX) is down 2.45 points to 28.19. Trading is much more active than Monday and Tuesday, with 6.3 million calls and 5.3 million puts traded through 12:45pm ET.

This Morning's Bullish Trading

SPDR Financials (XLF) added 52 cents to $12.59 after news of global Central Bank intervention into the financial system sparked a sharp rally in some of the banks and brokers. The new plans to provide liquidity comes just one day after Standard & Poor's issued a broad downgrade of banks late-Tuesday, including ratings on 15 global banks. XLF is up 4.3 percent on the news Wednesday, however, on diminishing fears about the debt crisis. Meanwhile, options volume in the product includes 172,000 calls and 199,000 puts through midday, which is about 2X the average daily. Some investors are likely liquidating protective positions in downside puts on the financial ETF, as implied volatility in XLF options is down 11.5 percent to 36.5 today and now down 22.3 percent on the week.

Curis Inc (CRIS) has added 22 cents to $3.44 and a noteworthy options trade on the biotechnology company Wednesday is a December 2.5 – March 2.5 put spread, which was sold at 25 cents, 15000X. In this trade, the investor bought 15,000 December 2.5 puts on the stock for a nickel and sold 15,000 March 2.5 puts at 30 cents. They apparently rolled a position, as open interest in Dec 2.5 puts is 15,096 and by far the largest position in the name. If so, they're probably a willing buyer of the stock at $2.50 per share, which is 27.3 percent below current levels, and are rolling out a short-position in $2.5 puts an additional three months.

This Morning's Bearish Trading

Pfizer (PFE) adds 55 cents to $19.95 and is one of thirty Dow stocks moving higher Wednesday. A noteworthy options trade on the pharmaceutical maker is an 85,000-contract block of January 20 calls, sold at 70 cents per contract; which is today's largest options trade in the market so far. It's not necessarily a bearish play, but seems to be a bet that shares will hold below the $20 strike through the January expiration, which is in 51 days. It might also be a liquidating trade, as open interest in Jan 20 calls on PFE is 225,946 contracts and the largest position in the name. Today's massive call write, for a net premium of nearly $6 million, possibly offsets a bullish position on the view the upside in PFE shares is limited in the short-term.

Accenture (ACN) adds $2.12 to $57.70 and a 3,600-contract block of January 57.5 puts trades on the stock for $3.05 on the International Securities Exchange. Data from the exchange indicate that an investor bought the block to open a new position. 5,940 now traded against 1,286 in open interest. An investor might be buying puts to hedge recent gains in shares of the Dublin, Ireland outsourcing company. The stock is up nearly 8 percent in the past four days.

Implied Volatility Mover

Bank of America (BAC) implied volatility is easing, as shares rebound off the multi-year lows set yesterday. BAC fell to $5.03 and to its lowest levels since March 2009 Tuesday. Shares are up 3.8 percent to $5.26 today, however, amid a flurry of activity in the options market. 159,000 calls and 166,000 puts traded on the bank through midday. August 5 puts and January13 4 puts are among the most actives, as some players might be liquidating positions in downside puts on diminishing fears about problems in the financial world. Implied volatility in the options on the stock is down 10 percent to 73.5.

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