Cusick's Corner

At this juncture the market is holding. Market sentiment, as far as retail investors are concerned, is at levels that have not been this low (as far as being bullish) since June. It will be interesting to see if the shorts feel pressure into the close, especially holding these levels in the face of poor data and earnings. Now this is in front of AAPL and AMZN, which have an expected move based on current options prices of $15 & $7.33 respectively. Plus with the volatility in both these names at the highest levels that we have seen in 3 months, there continues to still be a heightened expectation of move. I am staying small and very disciplined. Have to run - see you After Hours.

Market Recap

Stock market averages are holding modest gains with help from earnings and economic news Thursday. Data on Durable Goods released before the opening bell showed a surprise increase of 9.9 percent for September. An 8 percent increase was expected. Meanwhile, Jobless Claims fell to 369K last week, from 392K and better than the 375K that was expected. A third report on Pending Home Sales was up just .3 percent in September and well below expectations of 2.4 percent. Overseas markets were mostly steady before the data were released and Japan's Nikkei rose 1.1 percent overnight with help from Chinese manufacturing data. Eurozone equity markets were mixed and the euro ticked down .15 percent to 1.2955 against the dollar. Crude oil ticked 33 cents higher to $86.06 and gold gained back $12 to $1713.5. On the earnings front, Procter & Gamble (PG) is up 3.7 percent and the best gainer in the Dow on the heels of its quarterly results. Zynga (ZNGA) and Symantec (SYMC) are also rallying around their results. The Dow Jones Industrial Average, meanwhile, is up 31 points, but 56 points from morning highs. The NASDAQ added 10. CBOE Volatility Index (.VIX) is down .41 to 17.92. Overall options volumes are respectable, with 3.3 million calls and 2.6 million puts traded across the exchanges through 11:20am ET.

This Morning's Bullish Trading

Carnival Cruise (CCL) is up 91 cents to $38.68 and new 52-week highs in the wake of upbeat earnings news from peer Royal Caribbean (RCL), which rallied $3.12 to $34.27 per share. CCL is due to report again in mid-December. On the options front, trading is active in both names. 17,000 calls and 3,300 puts traded in CCL. The top trades are part of a spread, in which the investor apparently bought 4,283 January 40 calls on the stock for $1.45 per contract and sold 2,425 January 42 calls at 65 cents. More than 7,300 of the Jan 40 calls have changed hands, as some investors might be looking for the stock to cruise past $40 per share by early-2013.

CBOE Volatility Index (.VIX) saw a flurry of options activity in late-morning trading Thursday. VIX is flat at 18.43 and coming well off session lows of 17.30. About 477,000 calls and 63,000 puts traded on the index. One large spread trade is driving much of the flow. An investor sold 57,000 November 21 – 35 call spreads on the volatility index at 95 cents and bought 100,000 December 23 – 35 call spreads for 98 cents per spread. The hefty trade appears to be a position adjustment. That is, the investor might have been long the Nov 21 – 35 spread prior to today. They're now selling to cover that position, while opening a new trade in the December 23 – 35 call spread. If so, they're apparently extending a bullish volatility play out an additional month.

This Morning's Bearish Trading

ValueClick (VCLK), an online marketing provider, is off 6 cents to $16.47 and options on the stock are more actively traded than usual. Average daily volume in the name is only about 200 contracts, yet about 8,000 traded today. In addition, 95 percent of the volume has been in the put options on the stock. Call volume is only 350 contracts. January 15 puts, which are nearly 9 percent out-of-the-money, are the most actives. 5,109 contracts traded against just 126 in open interest. November 15 and January 16 puts are the next most actives. It's not clear what is motivating the activity, but implied volatility in the options on the stock is moving up 10.5 percent to 48.5 as some investors appear to be bracing for a possible drop in the stock in the weeks/months ahead.

Delta Airlines (DAL) loses 39 cents to $9.65 and put options on the airliner are busy today. About 20,000 puts and 2,000 calls so far, a ratio of ten-to-one. January 2014 puts with the $3 strike are the most actives. The flow includes a block of 3,500 contracts for 14 cents on ISE, which is an opening customer buyer, according to data from ISE. 11,600 now traded against 789 in open interest. The contract is deep (69 percent) out-of-the-money and therefore the flow seems somewhat unusual – perhaps a shareholder is taking out some "disaster insurance" on DAL.

Volume Signals

Zynga (ZNGA) options volume is running 2.5X the (22-day) average, with 66,000 contracts traded and call volume accounting for 76 percent of the volume.

P&G (PG) options volume is 3X, the average daily, with 66,000 contracts traded and call volume representing for 54 percent of the activity.

International Paper (IP) options volume is running 4.5X the average daily, with 57,000 contracts traded and call volume accounting for 93 percent of the activity.

Increasing options activity is also being seen in National Oilwell (NOV), Akamai (AKAM), and United Airlines (UAL)

Implied Volatility Mover

Implied volatility in Digital Realty Trust (DLR) is moving higher amid increasing options activity Thursday. The stock is down $2.29 to $61.41 in cautious trading ahead of the company's earnings report, due out tomorrow morning. Meanwhile, 2,490 puts and 720 calls traded in DLR, which is 4.5X the daily average for the San Francisco-based Real Estate Investment Trust [REIT]. November 65 calls and April 65 puts are the most actives. Implied volatility is moving up 19 percent to 30.5.

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