Cusick's Corner

Friday's action did two things, elevated selling to a level not seen in months and flagged a sector that will be testing the metal of the market, Financials (XLF). Financials have been the catalyst to the downside over the last two sessions so continued weakness could make it hard for the market to bounce with conviction. As I noted last week, keep an eye on the Consumer names, XLY, weakness here triggers not only concern about spending but also the economy. The pop in market volatility, VIX +3%, has put heightened expectation of a move, but it's still far from saying there is an over abundance of new fear in the market. Choppy trade looks to be on the menu into this new trading week. See you After Hours.

Market Recap

Stocks are trading mixed and the tone of trading stands in stark contrast to the volatility seen on expiration-Friday. After suffering its largest point drop in nearly four months, the S&P 500 opened modestly lower Monday, but with not much news to guide the action. No economic reports are due out until Wednesday's report on New Home Sales. Earnings will be in focus and Caterpillar (CAT) shares fell this morning after the company reported better-than-expected third quarter results, but then guided estimates lower for the full year. Overseas markets in Asia and Europe were mixed Monday. The euro added .3 percent to 1.305 on the dollar. Crude oil slipped another 29 cents to $90.15, but gold gained back $2.5 to $1726.5 an ounce. Trading is quiet on Wall Street as well. The S&P 500 is down 3 points, the Dow Jones Industrial Average is flat, and the NASDAQ is up a point. Trading in the options market is active to start the week, with 3.1 million calls and 2.7 million puts traded across the exchanges through 11:15am ET.

This Morning's Bullish Trading

United Healthcare (UNH) is up 1 percent to $56.10 and the best percentage gainer in the Dow Jones Industrial Average ahead of tonight's Presidential debate. Although the topic is foreign policy, the discussion could potentially shape the Presidential race, which will have implications for health insurance companies. Some investors might be anticipating favorable developments for UNH, as the stock is ticking higher and call options on the stock are busy today. The largest trade on the health management company today is a 9300-contract block of November 55 calls for $2.16 per contract on the International Securities Exchange. Data from the ISE reports an investor bought the block, to open a new position.

Peabody Energy (BTU) is rallying today. Shares of the coal producer gained $3.14 to $29.03 after the company released earnings and offered upbeat comments about the outlook for the market in 2013. Options volume on BTU is running 3.5X the daily average. 58,000 calls and 17,000 puts already traded on the ticker, including a 12,600-contract block of November 31 calls for 71 cents per contract.

This Morning's Bearish Trading

The woes continue for Overseas Shipholding (OSG) shareholders. After losing 36 percent last week, the stock is down another $2 to $1.25 after the company said that its financial statements during the past three years cannot be relied upon. The shipping company warned that it is exploring strategic options, including possible bankruptcy. About 23,000 puts and 8,175 calls traded in the name. January 4 puts are the most actives and might be seeing some liquidating trades since the contract is now deep in-the-money. Nevertheless, implied volatility in OSG options is up another 97 percent to 311 and new highs.

Gentex (GNTX), a Zeeland, MI auto-parts company, is up 25 cents to $17.21 and moving a bit higher ahead of the company's earnings report, which is due out Tuesday morning. Meanwhile, options volume on the stock is running nearly 10X the daily average. 3,620 puts and 565 calls so far. The bulk of the flow is in the November 15 puts and included a morning buyer of 1,335 contracts for 30 cents per contract, according to data from the ISE. 2,827 now traded against 366 in open interest.

Volume Signals

Peabody Energy (BTU) options volume is running 4X the (22-day) average, with 86,000 contracts traded and call volume accounting for 74 percent of the volume.

Supervalu (SVU) options volume is 8X, the average daily, with 42,000 contracts traded and call volume representing for 57 percent of the activity.

Nexen (NXY) options volume is running 10.5X the average daily, with 39,000 contracts traded and call volume accounting for 79 percent of the activity.

Increasing options activity is also being seen in Overseas Shipholding (OSG), Aetna (AET) and Juniper Networks (JNPR).

Implied Volatility Mover

Implied volatility in the options on Nexen (NXY) is elevated today after Reuters reported that Cnooc's deal to buy the company might be in jeopardy after the Canadian government block Petronas' bid for Progress Energy. NXY is down $1.28 to $24.12 in active trading of 33 million shares. Meanwhile, 31,000 calls and 8,000 puts traded on the Canadian energy company. Implied volatility is up 30 percent to 50, from 38, amid the uncertainty.

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