Aw Snap, Is Market Gonna Crackle or Pop?

Cusick's Corner
The vote is over. The debt crisis, well at least the missed payment, has past until 2013 and the market is now focused on the data that continues to disappoint. The Spending data is flagging a less than active consumer, a potential signal of a slowing employment market, while Senators, Congressmen and the President all are walking out of chambers ready to pat themselves on the back. However, when flashed with a 1.5%-2.0% across the board drop in the financial markets, they suddenly realize they need to refocus on economic growth. The data, the technicals and the general sentiment are what any bear would love to pounce on; the hard part is that this action is in day number 8 and the bid could potentially resurrect itself into the close, and that is how I am going to play it. I will most likely look to use credit spreads, taking advantage of selling defined risk high volatility. I will be watching the 1262 level on the S&Ps futures to hold support. See you After Hours.

The bearish underlying tone continues Tuesday on disappointing economic news and renewed concerns about the European Debt Crisis. Data released before the opening bell on Wall Street showed personal incomes up .1 percent and spending down .2 percent in June. While the income number was in-line with estimates, economists were expecting a .1 percent increase in spending. The drop marked the first decline in spending in almost two years. Sharp losses across the Eurozone after yields jumped in Spain and Italy Tuesday also weighed on early trading. Germany's DAX helped pace the decline with a loss of 2.3 percent. In the US, some of the focus remains on Washington. Although lawmakers struck a last minute deal to raise the debt ceiling, concerns remain that rating agencies will downgrade the US triple-A credit rating. Investors are grappling with a host of worries today and the Dow Jones Industrial Average is down another 115 points. The tech-heavy NASDAQ lost 25. CBOE Volatility Index (.VIX) slipped .38 to 23.28. Trading in the options market remains active, with 4.6 million calls and 5.0 million puts traded through 12:30pm ET.

Bullish Flow
JC Penney (JCP) is seeing a third day of bullish trading. As noted in yesterday's midday, August 30 calls on the retailer were being bought Monday and August 31 calls were busy on Friday. Today, shares saw a morning spike on heavy volume and are up 28 cents to $30.73. Options volume in JCP includes 18,000 calls and 9,825 puts. August 35 calls, which are 13.9 percent out-of-the-money and expiring in 17 days, are the most actives. 3,530 traded. August 31, 33 and 34 calls are seeing interest as well. The relative strength in the stock and increased call activity in JC Penney comes ahead of monthly same store sales numbers on August 4 and an earnings release on August 12.

TEVA was the subject of an interesting three-legged options spread today. Shares are down 96 cents to $42.80 and have now suffered a two-day 8.2 percent loss after the company announced disappointing results from an FDA trial of its MS drug. Yet, while shares have been under pressure, one strategist seems to view the weakness as an opportunity for a bullish trade and sold 3,000 December 35 puts on TEVA at 59 cents and bought 3,000 December 45 - 50 call spreads at $1.22. They paid a 63-cent net debit on the three-way spread and are apparently looking for the stock to rebound through December. If shares fall below $35 instead they would be on the hook to buy the stock (have put shares at $35) at the strike price of the put option.

Bearish Flow
Ten of the top twelve most actively traded options contracts are puts on the SPDR 500 Trust (SPY). The so-called 'SPYders' are trading down $1.72 to $127.06 and in the midst of an 8-day 5.6 percent decline. The ongoing slide has triggered a lot of activity in SPY put options. The August 127 puts, which are now at-the-money and expiring in 17 days, are today's most actives. 137,400 traded. August 120, 125, 126, 128 and 130 puts are heavily traded, as are Sep 105, Sep 125, Nov 118, and Nov 124 puts. Total volume in the exchange-traded fund is 1.73 million puts and 754,000 calls through midday. Some investors are likely buying downside puts on the Spiders on concerns about additional losses for the US equity market in the weeks/months ahead.

Put volume is picking up in William's Companies (WMB) ahead of earnings. Shares of the natural gas producer are trading down 86 cents to $30.75. Options volume in WMB through midday is 33,000 puts and 8,145 calls. The action included morning buyers of August 28 puts. 24,660 now traded and some of the action might be closing. Open interest is 46,153 and the contract is nearly 9 percent out-of-the-money with 17 days of life remaining. August 27 and 31 puts on Williams Companies are seeing interest as well. The increased put activity in WMB comes ahead of earnings, due out Wednesday afternoon.

Unusual Volume
NVidia (NVDA) options volume is running 2.5X the (22-day) average, with 74,000 contracts traded and call activity accounting for 66 percent of the volume.

TEVA options volume is 2.5X the average daily, with 45,000 contracts traded and call volume representing 60 percent of the activity.

Leap Wireless (LEAP) options volume is running 8X the average daily, with 41,000 contracts traded and put volume representing 62 percent of the total volume.

Increasing options activity is also being seen in Hertz (HTZ), Merck (MRK), and JC Penney (JCP).

Implied Volatility Mover
Ctrip.com (CTRP) is trading down $5 to $39.98 in volatile trading after the online travel company reported in-line second quarter profits, but guided estimates down for the third quarter. CTRP options are heavily traded, with 19,000 puts and 8,000 calls in the name so far. August 40 puts, which are now at-the-money, are the most actives. Volume is approaching 10,000. Some investors might be selling these short-term puts, as 80 percent of the volume has been on the bid and implied volatility in CTRP options is down 17.5 percent to 39.