Current Put/Call Ratio .35 11-29-2010

Cusick's Corner
The market is holding up well, anchored by a Finance sector, XLF, which as of late has been a weight on the upside. The range is getting on investors' nerves but the range has been good for traders. Right now you are seeing two dynamics, those who are cashing out and those who are jumping in because they missed that last wave up. That later segment, the new entrants, is what concerns me because they are not hedging any risk. Look at the Put/Call ratio at .35 which means there are 2 puts purchased for every 6 calls, leaving this move in headline risk mode (like Korea and the EU). I am watching the 1170 level on the S&Ps as a critical level for the market to hold. See you After Hours.

Major averages slumped Monday, as investors returned from the holiday weekend with few positive news items to guide the market higher. With no economic data on the calendar, the focus was back on Europe where the euro fell to two-month lows and major averages suffered steep losses on concerns about the unfolding European Debt Crisis. France's CAC 40 Index helped pace the decline with a loss of 2.4 percent. Stocks moved broadly lower in the US, but the Dow Jones Industrial Average has been able to stage a modest rebound attempt into midday. The Dow is off 110 points and 50 points off session lows. The NASDAQ is down 28. The CBOE Volatility Index (.VIX) hit a high of 23.84 and is up .68 to 22.90. Trading in the options market is running about the typical levels, with 3.7 million calls and 3.4million puts traded through 12:30 ET.

Bullish
Sprint Nextel (S) shares are off a nickel to $3.88 and have now fallen 18.7 percent since the company reported earnings on 10/27. Meanwhile, in the options market, 19,000 call options have traded on the phone company so far, which is not exceptionally high volume, but compares to just 1,720 puts. The action is concentrated in the December 4 calls. 16,500 changed hands through midday and, with 89 percent trading at the ask price, it appears that call buyers are dominating the action and looking for Sprint to recapture $4 by the December expiration, which is 18 days from today.

Walgreens (WAG) is seeing relative strength and increasing call activity. Shares hit a low of $33.38 in morning action, but have since rallied and are up $1.04 to $34.72. No news on the ticker to explain the intraday run higher, but increasing levels of call activity have accompanied the move. 21,000 calls and 3,430 puts traded through midday. December 36, January 30 and January 35 calls are the most actives.

Bearish
Put volume is picking up in Medco Health Solutions (MHS). Shares are off 27 cents to $60.40 and today's options volume includes about 10,000 puts and 2,100 call options. December 60 puts have traded 9,400X and, with 73 percent trading at the ask, it looks like put buyers are dominating the action. 1690 December 60 calls also changed hands (66 percent ask). Implied volatility is up 4 percent to 30, as it appears that premium buyers are taking positions and looking for heightened volatility in MHS options from now through the December expiration. No news on the ticker Monday.

A noteworthy trade occurred in XRT, the SPDR Retail Trust this morning. XRT, which holds a group of 70 different retailing names, is down 65 cents to $46.72 despite media reports of encouraging Black Friday sales. Good news might have been discounted ahead of time because XRT is up 30 percent since late-August. So, today's reaction might be a “buy the rumor, sell the news” in the retailers. Meanwhile, it looks like one investor is bracing for a possible pullback in the weeks ahead and initiated a bearish December 45 – 47 put spread, after buying 5,300 December 47 puts at $1.45 and selling twice as many (10,600) December 45 puts at 69 cents each.

Unusual Volume Movers
Barclay's PLC (BCS) options volume is running 70X the usual, with 163,000 contracts traded and put volume accounting for 98 percent of the activity, according to data from website WhatsTrading.com.

IShares MSCI EFA Fund (EFA) options activity is running 2X the usual, with 101,000 contracts traded and put volume representing 91 percent of the volume.

Coca Cola (KO) options volume is 2X the typical levels, with 60,000 contracts traded and call volume accounting for 58 percent of the activity.

Increasing volume is also being seen in Nokia (NOK), Tyson (TSN), and FedEx (FDX).

Implied Volatility Movers
Tyson (TSN) implied volatility is moving higher amid increasing levels of put activity Monday. Shares are down 8 cents to $16.06 and the options volume includes about 19,000 calls and 4,700 puts, which is 5X the recent average daily, according to Trade Alert data. January 12.5 and 15 puts are the most actives. December 16 puts and calls are seeing interest as well. Implied volatility is up 13 percent to 37.