Cusick's Corner

The NASDAQ started to slide yesterday in front of the AAPL news (which as I type this is a non-event), so I want to see if support is challenged in the Tech sector into the After Hours. We saw a similar reaction early in the morning when the Germans announced their vote in favor of balance sheet expansion and the Euro Currency, FXE, halted its ascent and now has pulled back only to consolidate off the highs. Watch for a potential challenge on the Euro currency, FXE 128.04, which could put pressure on the market into tomorrow's FOMC statement. See you After Hours.

Market Recap

Stock market averages are holding modest gains heading into midday trading Wednesday. Strength across the Eurozone helped set the table for steady trading on Wall Street after a German court ruled that the European Stability Mechanism is allowed under the German constitution and did not need a referendum to pass. Markets were mostly higher across the Eurozone; including a 1.2 percent gain in Italy's MIB Index and a .5 percent increase in Spain's IBEX. The euro is up another .4 percent and has reclaimed the 1.29 level against the US dollar. On the domestic economic front, a report released today showed August import prices increasing by .7 percent, marking the first gain in five months, due in large part to higher oil prices. A separate report on Wholesale Inventories was up .7 percent in July and .4 percent more than expected. The data didn't have much impact and investors are more interested in the Federal Reserve's two-day meeting. It concludes with a post-meeting statement tomorrow afternoon and investors are interested to hear if officials will offer another round of quantitative easing to help the sputtering economy. Some traders are also eyeing Apple (AAPL) ahead of the company's expected iPhone 5 announcement later today. Overall trading activity has been steady in the morning session. The Dow Jones Industrial Average is holding a 34-piont gain and the NASDAQ added 2.9 points. CBOE Volatility Index (.VIX) is down .32 to 16.09. Trading in the options market is active today, with 3.5 million calls and 2.7 million puts traded across the exchanges through 11:15am ET.

This Morning's Bullish Trading

US Oil Fund (USO), the ETF that tracks crude oil prices through futures contracts, is up 9 cents to $36.20 after crude fell to $96.40 in the wake of weekly inventory data, but is now up a dime to $97.27 per barrel. Trading in the options on USO is active Wednesday. 54,000 calls and 18,000 puts so far. December 38.5 calls, which are 6.4 percent out-of-the-money [OTM] and expiring in a little more than three months, are the most actives. More than 33,000 contracts traded against 6,755 in open interest. Some players in the options market might be buying upside calls on USO on the view that crude oil prices have further room to rise in the months ahead.

MGIC (MTG), a Milwaukee, WI mortgage insurance company, sees a second day of active trading. As noted in yesterday's midday update, September, December and January 2.5 calls on the stock were busy through midday Tuesday. Another 14,000 calls and 1,050 puts traded today, which is 6X the daily average volume for MTG. Shares dropped 12 cents to $1.61 and January 2 calls are seeing the bulk of the flow today. More than 10,000 traded against 881 in open interest. Jan $2 calls on MTG are 24.2 percent out-of-the-money and expire in 128 days.

This Morning's Bearish Trading

Arch Coal (ACI) had rallied 18 percent over the past week, but is giving back 23 cents to $6.61 Wednesday. Options activity is picking up in the coal producer. About 13,000 puts and 4,125 calls so far. October 6 puts are the most actives. 8,775 contracts traded against 6,425 in open interest. It appears that some investors were paying between 31 to 36 cents per contract in morning action for the downside puts, which are now 9.2 percent OTM and expiring in 37 days. It's not clear what's driving the bearish activity because there doesn't appear to be news on the stock today. Some investors might be taking positions on the view that the recent rebound on the stock won't last. ACI performed well over the previous five days, but the longer-term trend has not been bullish. The stock is down nearly 70 percent from the highs seen in September of last year.

iShares Germany Fund (EWG) is up 20 cents to $22.95 and has rallied 22.3 percent in less than two months. Shares are performing well on hopes ECB officials are taking steps to help stem the European Debt Crisis, which would be good news for the regions banks and the German economy. One player in the options market seems concerned that the rally won't last, however, as a 13000-contract block of October 21 puts traded on EWG today for 25 cents per contract when the market was 20 to 25 cents. It possibly closes a position opened on 8/31 when 13,000 Oct 21 puts traded on the Germany ETF traded on the 75-cent bid. Shares have rallied 8.3 percent since that time.

Volume Signals

iShares Long-term Bond Fund (TLT) options volume is running 2.5X the (22-day) average, with 137,000 contracts traded and put volume accounting for 89 percent of the volume.

MetLife (MET) options volume is 2X, the average daily, with 35,000 contracts traded and call volume representing for 71 percent of the activity.

Santander (SAN) options volume is running 2X the average daily, with 17,000 contracts traded and call volume accounting for 63 percent of the activity.

Increasing options activity is also being seen in the iShares Germany Fund (EWG), Bunge (BG), and Royal Caribbean (RCL).

Implied Volatility Mover

Implied volatility in the options on Monster Beverage (MNST) is moving higher Wednesday. The stock came under fire early and is down $3.75 to $52.61 on heavy volume of almost 3 million shares. It's not clear what is driving the action, as there are no obvious headlines on the stock, but options action is picking up as well. 3,260 calls and 4,360 puts traded on MNST so far and implied volatility in the 30-day options is moving up 18 percent to 42.

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