Focus on G20 Comments 11-11-2010

Cusick's Corner
Market players are focusing on G20 comments, especially with the currency war rhetoric continuing. While there is little expectation of a lot getting done at the conference, there will be some headlines. The current pullback is tempered and the bid has been nibbling, but not biting like it has in the past when such shake outs occurred. Watch the Put/Call ratios -- if they start to lean to bullish too quickly, going back below .50, the downside may see a strong push, at least this is what a contrarian might think. See you After Hours.

Stocks are broadly lower following another round of weakness in Europe's markets and disappointing earnings from tech bellwether Cisco Systems (CSCO). Europe's stock market averages traded broadly lower and the euro sank towards 1.36 against the buck Thursday amid ongoing concerns about the European Debt Crisis. Meanwhile, Cisco shares tumbled 16 percent and weighing on both the Dow Jones Industrial Average and the NASDAQ after the networking giant reported earnings that fell short of Street expectations. Beyond that, there hasn't been a lot of news to guide trading. The bond market and government offices are closed today in observance of Veteran's Day. The Dow Jones Industrial Average is off 105 points and the tech-heavy NASDAQ down 37. The CBOE Volatility Index (.VIX) gained .64 to 19.11. Meanwhile, trading in the options market is busy, with about 3.3 million calls and 2.6 million puts traded through 11:00 ET.

Bullish
An interesting spread trades in Amgen (AMGN) Thursday morning. Shares lost a nickel to $54.65 and one strategist apparently bought the November 55 – 57.5 call spread at 62 cents, 10170X. That is, they bought 10,170 November 55 calls at 84 cents and sold 10,170 November 57.5 calls at 22 cents. This spread is a bullish short-term play. It offers a max pay-off off $1.88 (excluding commissions) if shares move to $57.5 by the November expiration. It's a short-term play, because the expiration is at the end of next week. If shares fail to move beyond $55 during that time, the entire debit is at risk.

A massive spread trades in MGM Thursday. Shares are off 14 cents to $13.23 and one strategist sells 44,000 December 14 calls at 71 cents each to buy 33,000 March 20 calls at 45 cents per contract. This looks like a position adjustment. Namely, the strategist is selling-to-close an existing position the December 14s and opening a similar bullish position in the March 20 calls. They might have a bullish view on the stock and are buying an extra few months time, but also rolling the position up in strikes.

Bearish
Options volume is surging in Cisco Systems (CSCO). Shares are down $3.78 to $20.71 after the company reported fiscal first quarter earnings that beat estimates, but then guided estimates down for the second quarter. Shares are reeling on the news and options volume has rocketed to 884,000 options contract. The flow includes 565,000 calls and 318,000 puts. November 21 calls are the most actives. 44,000 traded, as some players are scrambling to exit positions as shares sink. Others are likely buying calls and looking to scalp short-term profits from the volatility in Cisco shares.

RINO International (RINO) has been hammered over the past two days after Muddy Waters Research suggested that the Chinese pollution control company is cooking its books. Shares tumbled 15 percent yesterday. The stock hit a new 52-week low today and is down $1.62 to $11.56. Meanwhile, options volume is running 3X the normal levels, with 26,000 puts and 6,560 calls traded in the name so far. November 20 puts are the most actives, with some players likely banking profits now that these put options are deep in-the-money.

Unusual Volume Movers
RINO options volume is running 3.5X the usual, with 33,000 contracts traded and call volume accounting for 80 percent of the activity, according to data from website WhatsTrading.com.

Cypress Semi (CY) options activity is running 8X the usual, with 23,000 contracts traded and call volume representing 53 percent of the volume.

Discover Financial Services (DFS) options volume is 9X the typical levels, with 18,000 contracts traded and call volume accounting for 96 percent of the activity.

Increasing volume is also being seen in Level 3 (LVLT), BJ Wholesale (BJ), and International Game Technology (IGT).

Implied Volatility Movers
Ingersoll Rand (IR) shares are up and implied volatility is higher. Trading is active on news the company will replace Pactiv (PTV) in the S&P 500 Index. Investors are buying shares in anticipation of the “index effect”, which sometimes happens when companies are added to the S&P 500 Index and those funds that track the index are forced to buy shares. IR is up 3.5 percent to $42.59 and options volume is double the normal, with 4,550 calls and 1,165 puts traded. Implied volatility has moved up about 4 percent to 38.