Is this a Sell-Off or Consolidation?

Cusick's Corner
As I look at the market and its current state, I turn to those offensive sectors as a gauge of strength -- XLF, XLE, QQQQ, and XLY. Financials and Energy have been lagging the recent run up and now are challenged. It is notable that all four of these sectors are in the red. So there is no leadership in sectors that actually need to lead if there is going to be further upside. This is a flag that this market is potentially in a correction phase (gauging Bearish Flow -- check out the SPY butterfly info) and there are some institutions that may be starting to think the same way. This is also a time where there is some potential for sector rotation and that changing dynamic from Risk Off assets. Also notable is the move AA made after earnings, it's down a buck. That is basically right where the $18 strike straddle was priced -- $1. As I pointed out last week, consider looking at the price of the at-the-money straddle to estimate the option marketplace's view of the potential range of a stock going into an event like earnings. Who said these markets were not efficient? See you After Hours.

Disappointing earnings and worries about Japan's nuke crisis are weighing on investor sentiment Tuesday. Alcoa (AA) is down 6.5 percent and the biggest loser in the Dow Jones Industrial Average after the aluminum maker reported earnings that topped Street views, but revenues fell short of forecasts. On the economic front, data released Tuesday morning showed the nation's Trade Balance narrowing to $45.8 billion in February, from $47 billion in January and in-line with economist estimates. However, the table was set for morning weakness on Wall Street after stocks moved broadly lower across Asia and Europe on concerns about Japan's nuclear crisis. Japan warned that it has raised its rating on disaster to 7 from 5, which puts it on par with the 1986 Chernobyl crisis. The Dow Jones Industrial Average followed overseas markets lower and is down 122 points midday. The NASDAQ lost 26.8. The CBOE Volatility Index (.VIX) added 1.10 to 17.69. Overall options volume is much more active and defensive today. 5.4 million calls and 5.5 million puts traded through 12:30pm ET.

Bullish Flow
Colgate Palmolive (CL) is seeing relative strength and increasing options action today. Shares are up $1.45 to $83.06 and options volume is running 3.5X the average daily. 9,260 calls and 7,130 puts traded in Colgate so far. The top trade of the day was a three-way spread in which the investor apparently bought 2,500 August 85 calls and helped finance the purchase by selling the August 70 - 75 put spread, 2500X. Meanwhile, May 85 calls, which are now 2.3 percent out-of-the-money with 38 days of life remaining, are the most actives. 2,600 have changed hands. April 85 and November 95 calls are busy as well. No news on the consumer goods company today, but the relative strength in the stock and overall options flow seems to reflect some bullish expectations with respect to CL.

Bank of America (BAC) April 14 call options are among the more actively traded equity options contracts today. Shares are down 9 cents to $13.40 and 46,280 contracts have changed hands. Some investors might be closing out positions ahead of the expiration. The contract is now 60 cents, or 2.9 percent out-of-the-money, and expires at the end of the week. Open interest is more than 360,000 contracts. However, some investors might be taking positions and speculating on earnings news. BofA is due to release results on the morning of options expiration Friday (4/15).

Bearish Flow
A massive put spread traded in the SPDR 500 Trust (SPY) today. The exchange-traded fund, which holds shares of the five hundred S&P companies, is down $1.19 to $131.27 and the spread was in the May puts. In this trade, the investor sold 70,000 May 127 puts at $1.57. They also bought 35,000 May 123 puts at 92 cents and bought 35,000 May 131 puts at $2.76. This 1X2X1 May 123 - 127 - 131 put butterfly spread was initiated at a 54-cent debit. It's a bearish play, or perhaps a short-term hedge, as it makes its best profits if shares fall to $127 through the May expiration, which represents a market decline of about 3 percent.

Applied Materials (AMAT) loses 33 cents to $15 and options volume is 3.3X the average daily. 29,000 puts and 5,570 calls traded in the name. The bulk of the volume is in the April 15 puts. 27,130 contracts have changed hands. The contract is now at-the-money and some investors might be closing positions ahead of the expiration later this week. Open interest is 43,547 and by far the largest open interest position in the semiconductor equipment maker.

Unusual Volume
Alcoa (AA) options volume is running 2X the (22-day) average, with 143,000 contracts traded and call volume accounting for about 58 percent of trades.

Delta Airlines (DAL) options volume is 7X the average daily, with 107,000 contracts traded and call volume representing for 91 percent of the activity.

Oil Service HOLDRS (OIH) options volume is running 2X the average daily, with 61,000 contracts traded and put volume accounting for 71 percent of the activity.

Increasing options activity is also being seen in Brocade (BRCD), Monsanto (MON), and Morgan Stanley (MS).

Implied Volatility Mover
Monsanto (MON) implied volatility is moving higher on a day of very heavy trading in the options market. Shares are performing relatively well, up $1.67, or 2.5 percent, to $68.83 and options volume is 43,000 calls and 7,050 puts. May 75 calls are busy, with more than 7,100 traded. April and May 70 calls are also seeing heavy volume. Meanwhile, implied volatility is up 7 percent to 31.5, as it appears that premium buyers are dominating the action and looking for Monsanto shares to rally in the weeks ahead.