Range-Bound 07-12-2011

Cusick's Corner
Last night as I was doing a webinar I was catching myself trading more than teaching as the markets were on the move - US Dollar was running to the upside, Euro sliced through $1.40, bonds were running on the long end and the equities sliced through that support level, 1315. Then as rumors started to surface that the ECB stepped into bond offerings in Italy and Spain, the markets came off the lows and I had to get some sleep. Today's action does support the comments yesterday, that this market looks like it will chop in this area, thankful shorts look to be covering and now traders will look at an estimated range of 21.5 points in the September Futures. There is no commitment on either side of the long or short side, and now we see that market is cyclically rounded out early into earnings season. See you After Hours.

Stocks are mixed in sluggish market action Tuesday morning. After losing 151 points yesterday, the Dow Jones Industrial Average struggled at the opening bell amid ongoing worries about the European Debt Crisis. Stock benchmarks moved broadly lower across Asia and Europe overnight on fears the debt crisis is spreading to larger Eurozone economies like Spain and Italy. The domestic news included the latest Trade Balance, which widened to a $50.2 billion deficit in May from $43.6 billion the month before and also much wider than the $44 billion that was expected. The data didn't help matters much and by mid-morning, both the Dow and the NASDAQ were in the red. However, unlike Monday, the decline never gathered any real momentum and trading has turned mixed midday. Cisco (CSCO), Traveler's (TRV), and American Express (AXP) are leading the industrial average to a 24-point gain. The NASDAQ is off four points. CBOE Volatility Index (.VIX) added .46 to 18.85. The underlying tone of trading in the options market remains cautious, with 3.8 million calls and 4.0 million puts traded through 12:00pm ET.

Bullish Flow
Alcoa (AA) shares are flat at $15.91 after the aluminum maker reported earnings. The Dow component unofficially kicked off the earnings reporting season after the closing bell Monday and announced a quarterly profit of 32 cents per share, which was a penny shy of Street estimates. However, revenues topped expectations. Consequently, trading in AA shares is steady through midday Tuesday. Meanwhile, the top options trade in AA today is a 10,000-contract block of August 16 calls which traded at 62 cents per contract on ISE. It is an opening customer buyer, according to data from the exchange. If so, this investor might be looking for shares to rally beyond $16 through the August expiration, which is in 38 days.

Research In Motion (RIMM) has added 34 cents to $28.39, as the company hosts its annual investor day today. Options in the Blackberry-maker are seeing heavy trading, with 57,000 calls and 9,815 traded on the ticker so far. July 30 calls, which are now 5.7 percent out-of-the-money, are the most actives. 23,130 traded. July 29 calls have traded 12,159 contracts. Some investors might be buying upside calls on hopes comments at the meeting will spark a rally in the share price. July options expire at the end of the week and have three trading days of life remaining after today.

Bearish Flow
Trina Solar (TSL) tanked today after a chairman and head of the company's audit committee resigned. Shares fell to a 52-week low and are down $2.67 to $17.09. Options on the solar energy company are heavily traded as well. 17,000 calls and 34,000 puts in the name so far. July 17 puts, which are now 9 cents out-of-the-money and expiring at the end of the week, are the most actives. 8,710 traded. July 18 puts are busy as well. Implied volatility in TSL options is also moving - up 60 percent to 85, as some nervous investors might be buying put options to protect stock investments in TSL.

There were some big prints in Qualcomm (QCOM) today. Shares of the chipmaker lost $1.77 to $56.47 and one investor apparently sold 10,000 August 62.5 calls at 45 cents and bought 10,000 August 50 puts at 42 cents. Therefore, they collected 3 cents for this bearish risk-reversal and appear to be bracing for heightened volatility in Qualcomm shares from now through the August expiration. It might be a play on earnings, due July 20. Or, a shareholder might have initiated the trade to hedge or "collar" the stock.

Unusual Volume
Annaly Capital (NLY) options volume is running 3X the (22-day) average, with 56,000 contracts traded and call activity accounting for 61 percent of the volume.

Trina Solar (TSL) options volume is 8X the average daily, with 50,000 contracts traded and put volume representing 66 percent of the activity.

Plains Exploration (PXP) options volume is running 10X the average daily, with 49,000 contracts traded and put volume representing 66 percent of the total volume.

Increasing options activity is also being seen in Cree Research (CREE), Delta Airlines (DAL), and MBIA (MBI).

Implied Volatility MoverMBIA (MBI) implied volatility is up after the company announced that it was dropping a lawsuit against Bank of America and Merrill Lynch. Shares of the surety and title insurance company are up 7.6 percent to $9.10 and leading gains in the mortgage sector (MTG, AGO, RDN, XL, PMI) Tuesday. Meanwhile, options volume in MBIA through midday is 19,000 calls and 3,100 puts. July, August and January $10 calls are the most actives and implied volatility surged 20 percent to 78.5.