Today’s tickers: ZION, KEY, JEF, AKS, DIA, RIO, NVDA, VCLK, BIG

ZION- Despite welterweight volumes trading on an abbreviated pre-holiday session, option activity in regional bank suggested more punishing declines in store when the market resumes trading after the weekend. Implied volatility is higher across the board and put trading is elevated on most sector names after Zions Bancorp shares tanked 14% on talk of its exposure to bad home loans in Arizona and Nevada. This followed comments from an analyst at Stifel Nicolaus as quoted on Bloomberg. Implied volatility in Zions Bancorp is up 27% today and a read of the option activity shows buying at the July 25 and 22.50 strikes, implying further erosion under these new lows. Other sizable spikes in implied volatility were observed in Corus Bankshares and Keycorp – while many these companies are due to report earnings before expiration, explaining some of the positioning (i.e. Zions Bancorp), the skew to puts has been fairly consistent throughout the sector.

KEY- As we observed above with Zions Bancorp, bad news out of one regional bank has lent an extremely defensive posture to activity in other regional bank names. KeyCorp option implied volatility rose 14.7% to 85.5%, even as shares tweaked out a half-percent gain to $11.17. While today’s volume was thin at just under 8,000, puts outtraded calls by 8-to-1 with fresh buying in 10-strike puts in the July and August contracts, suggesting erosion below the 52-week low of $10.80 over the next two weeks – even before Keycorp numbers are out on July 22 (corresponding with the August option series).

JEF- Option volume in Jefferies Group, the investment bank and institutional securities firm, rose to 6 times the normal level as shares traded flat at $15.88. The action here appeared to settle on the July 17.50 straddle, where a 4,000-lot position traded to the middle of the market at a combined premium of $2.30. Jefferies is due to report earnings on the eve of July contract’s expiration, which suggests a trader making an earnings-related volatility play. Implied volatility on all Jefferies Group options ticks in at 71% against a historic reading of 58% the underlying shares, a disparity that has remained largely stable since mid-June. This straddle position, if purchased, would protect the buyer in the event of a break to the upside past $19.80 or below $15.20 to the downside – well within the range of Jefferies’ shares over the past 52 weeks, which have seen the stock as low as $13.56 and as high as $30.48.

AKS- Steelmakers continued to grapple with kryptonite-like weakness today, AK Steel throwing another 7.2% of its market cap into the smelter to read $52.50 over the noon hour. Despite weakness in the sector, and with implied volatility on all AK Steel options ticking in at 83% against a historic reading of 55%, we saw what appeared to be call buying occurring at AK Steel’s 60 and 65 strike in July, carrying into fresh longs in August 60 calls. Traders may be availing themselves of lower call-side premiums as a result of the stock slump to wager on a relatively fast recouping of this week’s abysmal losses.

DIA- Shares in the “Dow Diamonds,” the ETF indexed to large-cap components in the Dow Jones Industrial Average, are showing a .68% gain to $112.91 at present dispatch, in a variable morning for US stocks that has the Dow average currently showing a hard-won 82-point gain. With 135,000 lots trading by the noon hour, we see a relative balance between puts and calls, although a sizable 10,000-lot trade went through this morning at the July 110 put strike. This appeared to sell to the bid at $1.35, representing nearly a third of the open interest at that strike. If the order flow information here is correct, this would seem to bet against a drop of that magnitude below the 52-week low of $111.85.

RIO- Companhia Vale do Rio Doce – Shares are 1% off at $32.02 following news that the company will sell $12.8 billion in shares in Brazil and internationally. The company is looking to finance a new campaign of acquisitions. With more than 76,000 options in play, CVRD ranks among the top-10 most active tickers on our platform. Similar volumes at these strikes suggest that a customer may have used a diagonal calendar put spread between the July 35 and September 30 strikes, possibly selling the front month put for $3.10 and buying the September put $2.00. This strategy would allow the trader to take advantage of more rapid time decay in the value of the front-month position and even wager on another $2 decline for CVRD shares by September, taking a $1.10 credit in the process.

NVDA - Nvidia – Shares in the second-largest maker of computer graphics processors tanked 30% to $12.59, crashing through the 52-week low on a premarket profit warning. Option volume is currently twice the normal level and its implied volatility is up nearly 21% to 73.6%, making it one of the shortened session’s top gainers. Heavy two-way traffic has settled on the July 12.50 strike, as well as the 20’s, which have sold heavily, but which we attribute to likely profit taking given that the price of this position is $7.10 – up from $1.70 two days ago. Fresh volume in the deep out-of-the-money August 10 puts have mostly sold to the bid, possible evidence of traders wagering on a bottom for Nvidia shares by mid-August.

VCLK - ValueClick - Shares notched .40% higher to $14.89, still lingering at the lows, on no news catalyst. Option volume has more than tripled against the normal daily average, however, with out-of-the-money call spread activity in the September contract between strikes 17.50 and 20. All of this volume is being logged to the middle of the market, making it difficult to ascertain directionality – a trader betting on recovery would have bought the lower strike and sold the higher to wager on price action in the $17.95-$20.00 range (requiring at least a 20% recovery from current prices) by September. A skeptic would do the reverse – taking a 45-cent credit in the expectation that ValueClick shares will remain at depressed levels into the fall. Implied volatility at 62.6% compares to a historic reading of 42.5% on ValueClick stock.

BIG- BigLots Inc – Shares in the close-out retailer are down 1.5% to $31.66, still only about $3 off the 52-week high – a trend attesting to the success of stores that sell cut-price remainders to cost-conscious shoppers, and to their own savvy (as was the case yesterday with Family Dollar) in attracting rebate check spenders. Option activity is showing an increase in volume to 2.5 times the normal level, but this appeared to involve a 2,000 lot put spread in the October contract at out-of-the-money strikes 22.50 and 30. Again, we can’t confirm the order flow of this trade, which was logged to the middle of the market, but a bear would enter the trade at a debit, seeing at least a decline to $27.75 according to current premiums – while a believer in the Big Lots story would take the $2.25 spread between the premiums as a credit, betting on buoyancy above the $30 level into the fall. Big Lots shares have traded as low as $12.40 and as high as $34.67 over the past 52 weeks.

Wow, now we are looking at a good open!

The ECB did, as expected, tighten rates by a quarter point, now 4.25% to our Fed’s 2% and our payrolls were indeed down 62,000 jobs with 5.5% unemployment and May was revised DOWN another 13,000 jobs to minus 62,000 as well.  All this was worse than expected with manufacturing and construction losses of 69,000 jobs were combined with 51,000 lost "Professional and Business Services" jobs and those were offset by 29,000 new government jobs, 15,000 Health care jobs and 7,000 service sector jobs.

So, the short story is you are losing your job and becoming either the foreign health-care worker you once hired to watch your granmother or you are getting your government paycheck by working for the man who has expanded government more than any TWO Presidents in US history.  The good news is wages went up 3.4%, we need some wage inflation to pay for the gas to get to work!

Hopefully, all this bad news is already baked into the cake and we can limp into earnings next week with our heads held - well, not exactly high but not quite on the chopping block just yet.  Earnings are either going to set us free or be the executioner’s axe that will destroy the markets in an Asian-style melt-down that will hit this country like a tsunami from which we will have a very hard time recovering.

I laid out my bullish premise in last night’s wrap-up and let’s focus on that ONE THING which can turn these markets around.  It is a very rare opportunity to have a reliable signal that will let us know when it’s a good time to commit so let’s stay on our toes and stick with the game plan.  Three quarters of the global economy is indicating they are serious about fighting inflation - no need to guess who the jokers are in the eyes of the world but, gluttons that we our, we are only 300M gluttons and we can only consume 25% of the world’s resources - believe me, if we COULD consume more, we WOULD consume more!  We discussed during the last G8 meeting that Bush was given a month or so to take action after which the World would move on and let him twist in the wind and tha’ts what’s happening.  Too bad it’s US that pays the price for his lack of action…

South Korea is having violent protests and strikes as inflation has exacerbated resentment about wealth concentration and limited opportunities and left Koreans yearning for the good old days of socialist military dictatorships . "Democratization has been a disappointment," says Yoon Geum-soon, who runs a small fruit farm and is active in a women’s rights group staging protests. "All the wealth goes to a few people, while others work hard for too little."  Its very sad that a Korean fruit farmer has a better grasp of economics than the average US voter.

The World Bank is calling on the G8 to do more to fight inflation and the G8 meets again in Japan next week so we’ll see how that goes.  The Hang Seng dropped another 2% this morning (461 points) giving them a down 1,600 point week (7%),  The Nikkei recovered from a steep drop at the open and finished the week down "just" 350 points, right at the 2.5% rule.  The Shanghai gained 2.5% on the day but still finished the week below 300 at 295, still down over 50% from their highs.

Europe had a terrible downturn yesterday and is improving back to even off a terrible open this morning.  Trichet’s remarks were somewhat comforting to the markets and the key is to let them know that the ECB is on top of things so they can move on with their investing.  Mission accomplished there!

Today is a short session and it wil be a real disappointment if we don’t get somewhat of a bounce to float us into the weekend.  If oil goes over $145 I think we’ll go red but, other than that, it’s bargain hunting time.