Sellers More Aggressive 07-14-2011

Cusick's Corner
The sellers have taken a bit out of this market into the Midday and I am a little surprised at how aggressively they are doing so. The volatility has been picking up and while it is typical for volatility to abate into this afternoon and tomorrow, we are not seeing that reflected in the VIX, +.98, which is unusual. Cover your risk in your expiring trades into the After Hours, this market is really whippy. See you After Hours.

Stock market averages have given up early gains and are in the red midday. The table was set for morning gains on Wall Street after data showed Retail Sales up .1 percent in June. Economists were expecting to see a decline of .2 percent. Separately, the Labor Department reported that weekly jobless claims declined by 22,000 to 405,000 in the period ended July 9. Economists were looking for a drop to 410,000. The Producer Price Index [PPI] was also released before the opening bell and showed a .4 percent decline last month. Economists were expecting the gauge of wholesale inflation to ease by .2 percent. Stock market averages moved higher on the data, but then trading turned more cautious after Federal Reserve Chairman Ben Bernanke delivered a second day of testimony to Congress. While he echoed his pledge to offer additional easing if needed, the Fed Head also said policymakers are "not prepared at this point to take action." A Moody's warning that it might cut the US triple-A credit rating late-Wednesday and the ongoing deadlock in the debate over the debt ceiling are also weighing on trading through midday. Consequently, the Dow Jones Industrial Average has given up early gains and is down 13 points. The NASDAQ is down 23. CBOE Volatility Index (.VIX) is up .99 to 20.90. Options volume is picking up due to the volatility and the expiration, with 4.9 million calls and 5 million puts traded through 12:30pm ET.

Bullish Flow
JP Morgan (JPM) is the best gainer in the Dow Jones Industrial Average today after the bank reported profits that beat Street estimates. The company earned $1.27 per share on $27.4 billion in revenues in the first quarter. Analysts were looking for $1.20 on $25.26 billion. JPM is up 2.7 percent to $40.69. Meanwhile, 121,000 calls and 60,000 puts have traded on the bank, which is twice the typical volume for midday. July 41 calls, which are now 31 cents out-of-the-money and expiring after tomorrow, are the most actives with 29,750 contracts traded. July 40 calls have traded 27,780 contracts.

CBOE Volatility Index (.VIX) has rebounded and recaptured the 20 "psyche level" Thursday. VIX hit a morning low of 19.35, but was recently up .95 to 20.86. July 25 calls on the volatility index are seeing noteworthy trading activity. 74,700 contracts changed hands so far. Another 24,225 VIX July 22.5 calls have traded. Some investors are likely buying these short-term contracts on concerns about the potential for market volatility in the days ahead. VIX options expire on Wednesday and for this July the expiration is after the standard expiration which means that July options on the volatility index expire in five days.

Bearish Flow
STEC is trading down 68 cents to $19.67 and put volume is picking up in the Santa Ana, CA data storage device maker. 18,000 contracts traded so far. By way of comparison, typical volume through midday is 750 contracts and a total of 2,135 STEC calls have traded on the session. November 14, 15, 16 and 17 puts are among the most actives in STEC. July 16, August 17, and August 18 puts are seeing interest as well. There's no news to explain the surge in put activity in the name today. It might be a play on earnings. Shares tumbled nearly 20 percent on May 11 after the company last released results.

An interesting trade surfaced in the Market Vectors Russia Fund (RSX). The ETF, which holds shares of Russia's leading publicly-traded companies, is down 22 cents to $38.41. In options action, one investor bought a 5,000-contract block of RSX August 37 puts at 70 cents and sold 15,000 August 35 puts at 30 cents. Therefore, they collected 20 cents for this 1X3 and are possibly looking for shares to fall towards $35 through the August expiration, which translates into a 9 percent decline over the next 36 days.

Unusual Volume
Conoco Phillips (COP) options volume is running 5.5X the (22-day) average, with 89,000 contracts traded and put activity accounting for 55 percent of the volume.

Sara Lee (SLE) options volume is 7.5X the average daily, with 76,000 contracts traded and call volume representing 66 percent of the activity.

Virgin Media (VMED) options volume is running 15X the average daily, with 35,000 contracts traded and call volume representing 99 percent of the total volume.

Increasing options activity is also being seen in Xerox (XRX), Starwood Hotels (HOT), and Marriott (MAR).

Implied Volatility Mover
Riverbed Technologies (RVBD) sees relative weakness and higher implied volatility today. Shares of the San Francisco, CA networking and communication device maker are down 2.9 percent to $38.73. Meanwhile, 9,045 calls and 8,650 puts traded in the name. Typical volume through midday is about 5,000 contracts. Players are possibly taking position in anticipation of earnings. The company is due to release results on July 19. Implied volatility in RVBD options is moving up 15.5 percent to 59 ahead of the results.