Cusick's Corner

The sellers took control early and have stayed in control with only a little bounce into the Midday. Volatility popped early, VIX +~5%, hitting resistance at the $16.50 level which has put the onus on the bid to come in and support this market into the After Hours. What is not helping the bulls cause is the action in the Bonds, especially at the long end of the curve, 30 YR +1, which looked like there was finally some decoupling from the equities. Money flow from bonds will be a big catalyst for the bulls but EU headlines and mixed economic data have not been a catalyst right now. At this stage it's a natural pullback in an overbought market -- S&Ps +~5% this month. See you After Hours.

Market Recap

Stock market averages are broadly lower as investors fret about the global economic backdrop. Losses were suffered across Asia's equity markets overnight and Japan's Nikkei slid more than 2 percent. In Europe, concerns that Greece might run out of money to force a "Grexit" from the EU and rising bond yields in Spain conspired to send stocks broadly lower. Spain's IBEX is down 4 percent and Italy's MIB Index is taking a 3.4 percent hit. Crude oil is down $2.15 to $89.22 per barrel and gold lost $21.7 to $1744.7 an ounce. On the domestic news front, a report showed New Home Sales down to a 373K annual rate in August, from 374K the month before a falling short of economist estimates of 380K. Overall, the day's events offered no fodder for the bulls and the Dow Jones Industrial Average is down 15 points heading into midday. The NASDAQ lost 26 points. CBOE Volatility Index (.VIX) is up .88 to 16.31. Trading in the options market is active and reflects the cautious underlying sentiment, with about 3.4 million calls and 3.5 million puts traded across the exchanges through 11:20am ET.

This Morning's Bullish Trading

Alpha Natural Resources (ANR) is up 8 cents to $6.62 in active trading of 11.8 million shares and attempting to rebound from a recent sell-off. Shares of the coal producer have tumbled 22.6 percent in just 8 days. Some players in the options market are also showing interest in the stock today. 19,000 calls and 5,350 puts traded in ANR so far. Weekly 6.5 calls, which are now 12 cents in-the-money and expiring in two-and-a-half days, are the most actives on the stock. 3,410 contracts have changed hands. March 10, October 7, December 7, October 8, and October 6 calls on the stock are seeing interest as well.

Pan American Silver (PAAS) is down 25 cents to $20.39 on a rough day for the metals markets after gold lost $20 to $1744 an ounce, silver slipped 23 cents to $33.72 and copper dropped 6.5 cents to $3.69. PAAS is down amid broader weakness in the miners, but overall options flow seems to reflect a contrary view on the situation – as 4,450 calls and 1,065 puts traded on the stock so far. October 21 calls, which are falling 3 percent out-of-the-money and expiring in 23 days, are the most actives on the stock. 2,560 contracts traded, including a 735-lot for 65 cents per contract when the market was 55 to 65 cents. Some players in the options market might be buying upside calls on the view that the three-day 9.4 percent losing skid in PAAS might represent an opportunity for bullish trades on the silver miner.

This Morning's Bearish Trading

Large spreads traded in two exchange-traded funds Wednesday morning. In the SPDR Financial Fund (XLF), which is down 7 cents to $15.53, a December 13 – 15 put spread traded for 31 cents, 50000X. In this plain vanilla put spread, the investor bought 50,000 Dec 15 puts on the stock for 41 cents per contract and sold 50,000 Dec 13 puts at 10 cents. The same spread traded Monday for 26.5 cents 165,000X. XLF is up 19.5 percent year-to-date and some investors might be taking positions in the December put spread on concerns about the outlook for the sector through the remainder of 2012. XLF is an exchange-traded fund that represents ownership in all of the financial-related names from the S&P 500.

Meanwhile, the iShares Europe, Australasia, and Far East Fund (EFA) is down 60 cents to $53.38 amid increasing volatility in European equity markets and one player seems to be bracing for additional losses in the region through the first half of 2013. A June 35 – 40 put spread is bought on the ETF for 49 cents, 25500X. The investor bought 25,500 June 40 puts for $1 and sold 25,500 June 35 puts at 51 cents. If bought-to-open, the position represents a very bearish view on the EFA fund, with a max payout if shares fall to $35 or less through the June expiration, or a 34.4% plunge over the next nine months.

Volume Signals

SPDR Homebuilders Trust (XHB) options volume is running 2X the (22-day) average, with 39,000 contracts traded and put volume accounting for 78 percent of the volume.

SPDR Banking ETF (KBE) options volume is 195X, the average daily, with 36,000 contracts traded and put volume representing for 50 percent of the activity.

Mittal Steel (MT) options volume is running 3X the average daily, with 28,000 contracts traded and call volume accounting for 97 percent of the activity.

Increasing options activity is also being seen in Safeway (SWY), Dendreon (DNDN), and Jabil Circuit (JBL).

Implied Volatility Mover

NetApp (NTAP) is under pressure and implied volatility in the options on the storage device-maker is moving higher amid increasing put activity Wednesday. The stock is down $1.34 to $33.08 in active trading of 5 million shares after peer Jabil Circuits fell on earnings news. 5,340 puts and 2,750 calls traded on NTAP. October 32, 33, and 34 puts are the most actives in NetApp today and 30-day implied volatility is up 18 percent to 37.5.

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