Cusick's Corner

While the market has stimulus, it will take some time to have an impact. The data and continued uncertainty in the EU is weighing on traders. All the major indices have given back the gains for the session yesterday, plus Gold continues to be hit in spite of QE. You might be getting my theme – some market participants might be looking at the landscape and are not seeing the short-term catalysts, so they just might be tightening up the risk going into month- and quarter-end. See you After Hours.

Market Recap

Concerns about Europe and poor domestic economic data weighed on investor sentiment Friday. The euro has given up gains and is down .3 percent to 1.287 against the buck and stock market averages are broadly lower across the Eurozone ahead of results from stress tests of Spanish banks. Stocks moved broadly higher the Thursday when Spain announced its 2013 budget. Now, the focus turns to stress test results that are due out after market hours in Madrid. Cautious trading across the Eurozone prevails ahead of the news. On the domestic economic front, a report showed personal spending up .1 percent and incomes increasing .5 percent last month, which was mostly in-line with Street expectations. However, a separate report released later showed Chicago PMI, an index of regional manufacturing activity, unexpectedly fell to 49.7 in September, from 53.0 last month and below expectations of 52.9. Meanwhile, U. of Michigan final sentiment index for September dropped to 78.3, from 79.2 and below expectations of 79. The Dow Jones Industrial Average opened lower and remained under water through the PMI and sentiment data. The industrials are now down 91 points heading into midday and the NASDAQ lost 19. CBOE Volatility Index (.VIX) is up .72 to 15.56. Trading in the options market is active amid end-of-quarter position squaring, with about 3 million calls and 2.8 million puts traded across the exchanges through 11:15am ET.

This Morning's Bullish Trading

Cerner (CERN), a Kansas City healthcare information services company, saw an unusual pop this morning and is trading up $2.33 to $76.83 after rallying to $77.32. Volume is about 1 million shares, which is double the typical volume for midday trading of CERN shares. Meanwhile, options volume is running 3.5X the daily average. 3,570 calls and 1,111 puts traded in Cerner so far. October 75 calls on the stock are $1.83 in-the-money and expiring in three weeks. 1,390 traded. December 85 and October 80 calls are the next most actives. It's not clear what is motivating the rally in the stock or the increased activity, because there are no headlines on the stock today.

SPDR 500 Trust (SPY) September 144 Quarterlys calls are today's most actively traded options contract. SPY, which is the exchange-traded fund that holds all of the S&P 500 related names, is down $1.09 to $143.55 and more than 137,000 of the Sep Quarterly 144 calls have changed hands against 45,280 in open interest. The contract expires at the end of the September quarter and so today is the last day to trade the contract. It is now 45 cents out-of-the-money. Some investors might be possibly buying the calls on hopes for an afternoon market rally. Others might be selling news positions on the view SPY is likely to hold below $144 through the end of today and the contract will expire worthless.

This Morning's Bearish Trading

Mittal Steel (MT) is down 56 cents to $14.42 and options volume on the steelmaker is running 2.5X the daily average, being driven by a Mar 15 – 16 call spread – sold at 38 cents, 13000X on ISE. Data from the exchange is reporting the 16s are closing and the 15s opening. So, the activity appears to roll a short call position down in strikes. Shares have lost more than 10 percent over the past two weeks and the investor is possibly adjusting the position on the view the stock is now likely to hold below $15 through the March 2013 expiration. A shareholder might have initiated the spread to adjust a buy-write or covered call on MT.

Under Armour (UA), a Baltimore, MD athletic apparel maker is off 30 cents to $55.70 and possibly falling in sympathy with Nike (NKE), which slipped on earnings results Friday. Options on Under Armour are seeing active trading. 6,600 puts and 850 calls so far, a ratio of almost 8-to-1. Much of the flow is concentrated in October 55 puts, which are now 70 cents out-of-the-money and expiring in 21 days. Some investors are possibly taking positions in downside puts on the heels of Nike's earnings on concerns that UA will also disappoint when earnings are reported next month. However, the company might possibly report outside of the October expiration.

Volume Signals

iShares Hong Kong Fund (EWH) options volume is running 350X the (22-day) average, with 224,000 contracts traded and call volume accounting for 50 percent of the volume.

Research In Motion (RIMM) options volume is 3X, the average daily, with 178,000 contracts traded and call volume representing for 67 percent of the activity.

Nike (NKE) options volume is running 2X the average daily, with 51,000 contracts traded and put volume accounting for 53 percent of the activity.

Increasing options activity is also being seen in Mittal Steel (MT), Coach (COH), and Accenture (ACN).

Implied Volatility Mover

Implied volatility in the options on Research in Motion (RIMM) is down sharply after the Blackberry-maker reported earnings after the closing bell yesterday. Shares are up 68 cents to $7.82 in heavy trading of more than 78 million shares after beating on earnings and revenues. The company also said it expects to launch Blackberry 10 during the first quarter of next year. Options volume in RIM is approaching 200,000 contracts. 131,000 calls and 65,000 puts so far and implied volatility in RIM options is down 29.5 percent to 67.

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