WANTED: Buyers 07-18-2011

Cusick's Corner
Buyers Wanted. The market cannot find a bid and sliced through support, 1300 on the S&Ps, and into the midday traders are waiting to see if a bid shows up in any segment other then bonds. With the Moody's news, battle on Capitol Hill, and continued EU debt risk, the shorts are in control. While this is not capitulation on the short side, keep an eye on support, 1285 on the S&P, to see if the bid resurrects itself especially since we finished on a run up Friday. We usually see the week following expiration continue the trend and we currently are countering this logic. So watch support and keep an eye on Tech and APPL earnings tomorrow which could buoy the market. See you After Hours.

Stocks are broadly lower Monday morning. The table was set for morning weakness on Wall Street after stock benchmarks moved broadly lower across Europe amid ongoing concerns about the European Debt Crisis. A series of stress tests of Eurozone banks late last week failed to ease those concerns, as nine banks didn't pass. Meanwhile, in the US, concern is mounting over the August 2 deadline to raise the debt ceiling. Credit rating agencies warned last week that the US triple-A debt rating could be in jeopardy should the US default. Republicans and Democrats are scrambling to develop a fallback plan. On the economic front, the only stat of the day was a bit better-than-expected. According to the National Association of Homebuilders (NAHB), an index of builder confidence (HMI) improved to 15 this month, from only 13 the month before and better than the 14 that economists had expected. The market showed little reaction to the data. Instead, the focus seems to be on debt problems at home and abroad. Some pre-earnings jitters are also affecting trading, as the week ahead is crowded with earnings releases. More than 100 of the S&P 500 companies are due to report. The Dow Jones Industrial Average is down 150 points and the tech-heavy NASDAQ lost 37. CBOE Volatility Index (.VIX) jumped 2.14 to 21.67. Trading in the options market remains active, with 3.6 million calls and 3.3 million puts traded through 11:15am ET.

Bullish Flow
Calls on the Proshares Short S&P 500 ETF (SH) are busy today. Shares, which move the inverse to the S&P 500 Index, have added 50 cents to $41.46. Options volume in the exchange-traded fund is 11,000 calls and only 22 puts. Typical volume in SH through midday is about 500 contracts. August 44 calls, which are now 6.1 percent out-of-the-money, are the most actives. 8,020 traded and, with 60 percent trading at the ask, it appears that buyers are taking positions and looking for SH to move higher in the weeks ahead. By placing bullish trades on SH, these investors are actually making bearish bets on the S&P 500 and looking for the market to continue its recent move lower.

Gilead Sciences (GILD) loses 51 cents to $40.49 and options volume in the biotech is running 3.5X the recent average daily volume. 27,000 calls and 1,900 puts traded in GILD so far today. The top trades of the day are part of a spread, in which the investor apparently bought 3,850 September 42 calls on Gilead at $1.58 and sold 3,850 August 42 calls at 94 cents. Therefore, they paid 64 cents for this Aug - Sep 42 call "time" spread and are possibly looking for the stock to hold below $42 through the August expiration and then rally from that point forward. The spread has traded multiple times and volume in both contracts is now more than 11,000.

Bearish Flow
SPDR Homebuilders ETF (XHB), which is an exchange-traded fund that hold shares of a basket of housing and homebuilding companies, is trading down 38 cents to $17.20, even after the latest homebuilder's sentiment index from NAHB showed an increase to 15 this month, up from 13 the previous month and better than the 14 reading that was expected. In options action, a noteworthy trade in XHB is a purchase of 25,000 September 17 puts at an average of 64.5 cents per contract. This position looks opening and might be a bearish play ahead of Housing Starts data tomorrow and existing home sales Wednesday.

PowerShares Bullish Dollar Fund (UUP) adds 14 cents to $21.57 and one strategist sells 25,000 January 22 calls on the fund at 51 cents per contract. This might be a closing trade, as open interest is 129.957 contracts. UUP is an exchange-traded fund that tracks the performance of the dollar against a basket of foreign currencies. It is heavily weighted against the euro and yen. Today's call writer might see limited upside for the buck against the euro, yen and others after a recent run up off early-July lows. They are selling these out-of-the-money calls and exiting a bullish trade.

Unusual Volume
Morgan Stanley (MS) options volume is running 2X the (22-day) average, with 52,000 contracts traded and call activity accounting for 64 percent of the volume.

Gilead Sciences (GILD) options volume is 3X the average daily, with 28,000 contracts traded and call volume representing 94 percent of the activity.

Sonus Networks (SONS) options volume is running 10X the average daily, with 18,000 contracts traded and call volume representing 99 percent of the total volume.

Increasing options activity is also being seen in Gold Fields (GFI), SuperValue (SVU) and SilverCorp. Metals (SVM).

Implied Volatility Mover
CBOE Volatility Index (.VIX) is up and options on the VIX are actively traded today. VIX has added 2.13 to 21.66 and moving to its best levels since late-June. The volatility index has rallied 35.8 percent over the past 8 trading sessions on concerns about the European Debt Crisis, the upcoming deadline to raise the debt ceiling, and uncertainty about earnings heading into the reporting season. 199,000 calls and 56,000 puts have traded in the VIX pits through midday. Tomorrow is likely to see busy trading as well. Tuesday is the last day to trade VIX July options before the contracts expire Wednesday.