Stock Markets Slip into the Red

Cusick’s Corner 12:15 PM

After the data this morning the market had every reason to take a charge to the upside but for one — the election. I pointed out yesterday and will say it again that there might be a lot of negative long-only managers and cash-only investors out there who are chomping at the bit to get their money working. At this stage it feels like there is not much that will push either side into this market with any conviction until it is settled who will win this election. I do expect choppy trade into the After Hours and I am watching the weakness in Apple (AAPL) closely, it is challenging long-term support of $590.

Stock market averages opened higher with help from jobs data, but have slipped into the red through midday. The highly anticipated monthly report showed the US economy adding 171,000 jobs in October, which was better than the 125,000 that was expected. Last month’s headline number was revised up to 148,000 from 114,000. The unemployment rate rose to 7.9 percent from 7.8 percent and in-line with expectations. Average hourly earnings were unchanged. A .2 percent increase was expected. A separate report released later showed September Factory Orders up 4.8 percent and .3 percent more than expected.

Yet, while the economic news seemed upbeat, crude oil and gold are taking it on the chin. Crude lost $1.70 to $85.39 and gold gave up $32 to $1683.5. Stock market averages were mostly higher across Asia, but trading has turned a bit sluggish throughout most European equity markets following a round of mixed manufacturing data for the region. Meanwhile, on Wall Street, the Dow Jones Industrial Average has surrendered early gains and is down 30 pints, or 86 points from session highs. The NASDAQ dropped 7.5 points. CBOE Volatility Index (.VIX) edged up .21 to 16.90. Overall options volumes are running at the best levels so far this week, with 3.8 million calls and 3.2 million puts traded across the exchanges through 11:30am ET.

Bullish Flow
Cisco (CSCO) slips 10 cents to $17.40 and is one of 18 Dow stocks trading lower after market breadth turned modestly negative through midday. Options on the networking company are busy heading into a November 13 earnings release. 34,000 calls and 18,000 puts traded in Cisco so far. Some players are sizing up CSCO November 18 calls, which are 60 cents out-of-the-money and expire just a few days after the company releases results. The top trade we saw was a 5200-contract order traded for $0.42 per contract. A customer bought the calls, to open, according to our sources. 26,100 November 18 calls have now traded on Cisco so far.

Guess (GES) sees a volatile morning of trading Friday. The stock opened for $23.2 on news of a management shake-up at the senior level and is now down $1.23 to $24.66 in heavy trading of 2.5 million shares. Meanwhile, 8,750 calls and 1,820 puts traded in the name. March 26 calls are seeing the most action. 6,930 contracts now traded against 54 contracts in open interest. The largest trade is 4000 contracts for $1.50 on ISE and was an opening buyer, according to ISEE data. Some investors might be taking positions on the view today’s management changes are a long-term positive for the company and that today’s decline in the shares is overdone. Rather than buying the stock outright today, however, they are taking positions in calls that give the right to buy (call) the stock at a set price through a specific expiration date.

Bearish Flow
Waste Management (WM) sank in early trading and is down 60 cents to $32.40 heading into midday. Morning options trades on the stock included several smaller lots of November 33 puts for 55 cents just after the opening bell. Then, about 10 minutes later, several more options traded for 75 cents. Total volume at that line is now 3,333 contracts against 1,405 in open interest. It’s not clear what is motivating the action, as there are no headlines on the ticker today. Nov 33 puts on WM are now 60 cents in-the-money and expiring in just two weeks. The company reported earnings on Wednesday.

Corrections Corp of America (CXW) hit a 52-week high of $35.5 today, but has since eased back off its best levels and is down 37 cents to $34.80. Options volume on the stock is running 4X the daily average, with 3,490 puts and only 60 calls traded on the ticker so far. The flow is mostly concentrated in November 32 puts and includes a 1500-contract block traded for 35 cents when the market was 20 to 35 cents. 3,336 contracts now traded against just 22 in open interest. Some investors might be buying puts as a type of downside insurance to help hedge recent gains in the stock heading into a November 7 earnings report.

Unusual Volume
Starbucks (SBUX) options volume is running 2.5X the (22-day) average, with 74,000 contracts traded and call volume accounting for 64 percent of the volume.

SPDR Healthcare (XLV) options volume is 4.5X, the average daily, with 61,000 contracts traded and call volume representing for 100 percent of the activity.

Priceline (PCLN) options volume is running 2X the average daily, with 60,000 contracts traded and call volume accounting for 58 percent of the activity.

Increasing options activity is also being seen in LinkedIn (LNKD), Agilent (A), and Newmont Mining (NEM).

Implied Volatility Mover
Implied volatility in the options on Questcor (QCOR) is moving higher amid active trading in the options on the biotechnology company today. The stock is down 7.4 percent to $23.41 after the FDA granted Orphan status to a drug similar to the company’s Achtar. Shares are down on the headline and options volume in QCOR includes 9,300 calls and 7,500 puts. November 26 and 30 calls are the most actives. Implied volatility in the options on the stock moved up 23 percent to 80.

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Joe Cusick