Cusick's Corner

The overnight and early morning action set the negative tone and Tech continues to lead the way to the downside. Tech bellwether Apple (AAPL) continues to struggle, down again today and in total -10% from the all-time highs of $702 which does not bode well for further upticks. As I mentioned yesterday, the Semis, SMH, continue to struggle with Intel (INTC) and TSM, TXM, ASML, BRCM -- 45% of this ETF are all down ~2%. For those who trade solar stocks, keep an eye out on the Dept. of Commerce's ruling on potentially increasing duties on Chinese producers (STP, JKS, YGE are some of the more notable names). I am looking for volatility to continue to pick up into the After Hours, so stay on your toes.

Market Recap

Stock market averages are near session lows heading into midday trading Tuesday. Some pre-earnings jitters might be affecting sentiment, as Dow component Alcoa (AA) is slated to kick off the third quarter earnings reporting period after the closing bell today. However, the flow of earnings releases doesn't really pick up momentum until next week. Meanwhile, Intel (INTC) is down 2.7 percent --- the biggest loser in the Dow Jones Industrial Average and also weighing on the NASDAQ – after being hit with an analyst downgrade. No economic reports were out today and action in the commodities markets is mixed. While crude oil gained $1.79 to $91.12 per barrel, gold lost $11 to $1764.5. Market averages are broadly lower across the Eurozone and the euro dropped another .7 percent to 1.2882 on the dollar, as German Chancellor Merkel is greeted by protests on arrival to Greece for a meeting with Prime Minister Antonis Samaras. A tightening US Presidential race is perhaps adding to anxiety on Wall Street as well. The Dow is down 93 points and 6 points from session lows. The NASDAQ dropped 45. CBOE Volatility Index (.VIX) jumped another 1.07 to 16.18. Trading in the options market is picking up from Monday's slow pace and being driven by increased put activity. About 2.65 million calls and 2.65 million puts traded across the exchanges through 11:15am ET.

This Morning's Bullish Trading

NRG Energy sees a spike to 52-week highs this morning and is now up 7 cents to $23.02. Options volume on NRG is running almost 3X the daily average, with about 17,000 calls and 840 puts traded on the stock so far. November 25 calls are the most actives. 10,690 contracts changed hands. December 25 and November 24 calls on the Princeton, NJ power generation and electric company are seeing interest as well. It's not clear what is motivating the higher options volume in the name today, as there are no obvious company-specific headlines on the ticker. Some players might be looking for results of the Presidential elections to trigger volatility in NRG. The utility has coal-fired units and, in the debate last Wednesday, the Presidential hopeful Romney told the audience "And by the way, I like coal."

October 22 calls on the PowerShares Bullish Dollar Fund (UUP) are seeing interest again today. Shares, which track the buck against a basket of foreign currencies (but heavily weighted towards the EUR/USD pair), are up 12 cents to $21.93 on a second consecutive day of weakness in the euro. EUR/USD is down to 1.287 from 1.303 Friday. Some investors might be possibly looking for additional weakness in the European currency over the next 10 days, as more than 14,300 October 22 calls have traded on UUP. The contract is now 7 cents out-of-the-money and expiring at the end of next week. Open interest in the contract is more than 370K and the eighth largest open interest among any listed options contract today. So, today's activity is possibly closing or offsetting trades.

This Morning's Bearish Trading

The five most actively traded options contracts through midday are put options on the SPDR 500 Trust (SPY) which is trading down $1.05 to $144.59 in relatively active trading of 77 million shares. Meanwhile, options volume on the ETF is 754,000 puts and 340,000 calls. October 140 puts are the most actively contract of the day. 52,800 have changed hands so far. Since SPY is an exchange-traded fund that represents ownership of all the S&P 500 stocks (market-value weighted like the S&P 500 Index itself), some investors are possibly buying the Oct 140 downside puts as a short-term hedge given the increase in market volatility today. SPY October 141 puts, 139 puts, 145 puts, and 142 puts are the next most actively traded options contracts across all the exchanges through midday.

SPDR High Yield Bond Fund (JNK) is off 4 cents to $40.16 and has given back about 1.5 percent from the 52-week highs set less than a month ago (9/14). Some investors in the options market seem to be bracing for additional losses in the junk bond world, as December 40 puts on the ETF are busy today. The top trade is a block of 2,400 contracts for 80 cents per contract when the market was 70 to 85 cents. 5,125 now traded against 1,766 in open interest. JNK moves lower when bond prices (held within the fund) fall, and their yields rise.

Volume Signals

Eli Lilly (LLY) options volume is running 2.5X the (22-day) average, with 36,000 contracts traded and call volume accounting for 74 percent of the volume.

NRG options volume is 3X, the average daily, with 18,000 contracts traded and call volume representing for 95 percent of the activity.

Yum Brands (YUM) options volume is running 2X the average daily, with 15,000 contracts traded and put volume accounting for 55 percent of the activity.

Increasing options activity is also being seen in 3M (MMM), VM Ware (VMW), and Fortinet (FTNT).

Implied Volatility Mover

Implied volatility in the options on Baidu.com (BIDU) is moving higher today amid increasing options activity. The stock is down $7.42 to $106.87 in active trading of 6.8 million shares after being whacked with an analyst downgrade before the open. On the options front, 47,000 calls and 44,000 puts traded on the Chinese Internet company. Weekly 105 puts, which expire 10/12, are the most actives on the ticker. 10,650 contracts changed hands. Meanwhile, implied volatility in BIDU options moved up 15 percent to 43 as the stock fell Tuesday morning.

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