Cusick's Corner

The debate was a non-event. They both did their job, so nothing much did come of that event. With the late day pressure to the downside and a continued pressure into the Midday, the equities markets are being tested at these levels. One sector that I do see a potentially new trend shift is in the consumer space, XLY, potentially to the downside. If this sector does turn this would be a red flag for the market. This could then add more offensive sectors and over the last week I have been mentioning that Tech (QQQ) and Industrials (XLI) might get challenged and potentially bearish. Bonds look to have gained support today in spite of the poor offering, so then why would bonds turn up? Answer is probably on fears of domestic and global economic worries. This would not be painting a good picture for upside going into end of day. See you After Hours.

Market Recap

Stock market averages are lower through midday with weakness in some of the financial names offsetting upbeat consumer sentiment numbers. Wells Fargo (WFC) is down $1.20 to $33.98 after reporting earnings of 88 cents per share, which was a penny better than Street estimates. However, revenues fell short of expectations. JP Morgan (JPM) lost 58 cents to $41.52 after beating on both EPS and revenue numbers. The stock had run-up in the weeks leading into the report and so profit-taking is perhaps the reason for the stock drop. Meanwhile, Bank of America (BAC) is down 2.5 percent and the biggest loser in the Dow Jones Industrial Average ahead of its October 17 earnings report. On the economic front, the news was mixed. The PPI for September was up 1.1 percent and .3 percent hotter-than-expected. However, U. of Michigan Sentiment Index unexpectedly jumped to 83.1 in October, from 78.3 last month and almost 5 points better-than-expected. Trading was mixed across the Eurozone, but most market averages are showing modest losses ahead of the weekend. France's CAC 40 and Germany's DAX are both down .6 percent. The euro ticked up .1 percent to 1.2945 on the buck. Crude oil is drifting down 27 cents to $91.80 and gold is down $8 to $1762.5. Trading has turned sluggish on Wall Street as well. The Dow Jones Industrial Average is down 8 points and the NASDAQ lost 4 points. CBOE Volatility Index (.VIX) is up .35 to 15.94. Trading in the options market is active today, with about 3 million calls and 3 million puts traded across the exchanges through 11:30am ET.

This Morning's Bullish Trading

Sprint Nextel (S) sees a second day of heavy trading. The stock was up 14.3 percent and hit more than $6 per share (intraday) for the first time since May 2011 yesterday on reports Softbank is considering making a substantial investment in the company. The stock has given back 9 cents to $5.67 today and the heavy trading continues. 70.6 million shares and 205K options contracts traded on the telecomm, including 150K calls and 55K puts. October 6 calls are the most actives. The contract is 33 cents out-of-the-money and expires in a week. More than 40,000 contracts traded. According to Reuters, the talks between Sprint and Softbank are in an advanced stage and a deal could come in the next several days. Today's interest in upside Oct calls might reflect hopes for some type of announcement before next Friday. November 6 and 7 calls are the next most actives in Sprint today.

Ecolab (ECL), a St. Paul, MN manufacturer of cleaning and sanitizing products, is up $1.92 to $65.58 in relatively active trading of 2.2 million shares. By way of comparison, typical volume in ECL through midday is about 700,000 shares. Relative strength in the stock and higher volumes are probably related to the company's earnings guidance. ECL raised its third quarter EPS numbers this morning. The stock is up and options volume is running 27.5X the daily average. 3,200 calls and 470 puts traded on the ticker. October 67.5 calls are seeing the most volume. 1,700 traded. Volume in the Nov 67.5 calls is approaching 900 contracts.

This Morning's Bearish Trading

A large three-way options position was initiated in Yahoo (YHOO) today. The stock is down a nickel to $15.87 and one investor sold 12,500 November 17 calls on the stock at 18 cents, bought 17,250 November 15 puts for 20 cents and sold 17,250 November 14 puts at 7 cents. In other words, upside calls were sold at 18 cents to buy the Nov 14 – 15 put spread for 13 cents. The position appears to be a new one (volume exceeds open interest in the November 14 and 15 puts). If so, this position might be designed to help hedge a stock position because it offers its best payout if shares fall to $14 (-11.8%) through the November expiration (five weeks). Yahoo will report earnings on October 22.

United Technologies (UTX) is down a nickel to $76 and one of 18 Dow stocks trading lower midday Friday. On the options front, about 12,000 calls and 1,000 puts traded on the stock. Much of the volume is due to one trade after an investor sold 10,000 January 82.5 calls on the stock at 78 cents per contract. Open interest at that strike is 17,151 and currently the largest in UTX. Today's call writer is possibly selling the position (to close) on diminishing hopes for a rally beyond $82.5 through mid-January. The stock was trading for $82.45 on 9/14, but is down 7.8 percent since that time.

Volume Signals

Sprint Nextel (S) options volume is running 2X the (22-day) average, with 215,000 contracts traded and call volume accounting for 73 percent of the volume.

Wells Fargo (WFC) options volume is 2X, the average daily, with 148,000 contracts traded and call volume representing for 62 percent of the activity.

AMD options volume is running 3.5X the average daily, with 65,000 contracts traded and call volume accounting for 58 percent of the activity.

Increasing options activity is also being seen in Clearwire (CLWR), TJX, and Focus Media (FMCN).

Implied Volatility Mover

Implied volatility in the options on Focus Media (FMCN) is moving up amid increasing put volume on the stock. Shares are down 46 cents to $24. Meanwhile, 20,000 puts and 1,300 calls traded on the Chinese media company. January 15 puts are the most actives. 5,000 contracts traded. November 21, November 23, and April 20 puts are the next most actives and 30-day implied volatility is moving up 41 percent to 46. No news to explain the activity. Earnings are due out mid-November.

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