Today’s tickers: WY, CSCO, CTSH, ELN, BIIB, ANR, ORCL, MAR, A, IP, HBC, RKH

WY, -On the cusp of a week that will bring about its much-anticipated earnings report, calls in North America’s top timber producer Weyerhaeuser are trading on their heaviest volume in at least a year. Today’s 4.5% gain for shares to $55.88 caps off a two-week period that’s seen an 18% bounce back in its shares. Weyerhaeuser is still down nearly 25% for the year to date, and has reported declining earnings over the past 4 cycles. Barely two months ago, Weyerhaeuser shares sustained a 7.6% one-day hit after the company announced a wave of job cuts and denied reports that it might be planning convert into a real-estate investment trust. The company is still looking to divest non-core assets, including a shipping line and several regional railroads. It is against that backdrop that we see its options trading on an elevated implied volatility reading of 46.0% against the 39.4% historic reading on the shares. Front-month options are currently pricing in as much as a $4.20 move (7%) on back of the numbers, and with calls outmoving puts by 7 to 1, there is much to suggest a move to the upside from current levels. August 55 and 60 calls are particularly active this afternoon, well in advance of open interest and on sharply higher premiums. Interest in the 60-strike calls extended into the October contract, trading at $2.85 apiece – we’ll continue to keep a watch on this ticker throughout Monday, before the numbers are out.

CSCO, - Also due to report earnings next Tuesday is network equipment maker Cisco. Shares are .32% higher at $22.06 today and implied volatility on its options at 40.5% compares to a historic reading of 35.6% on the underlying stock. The price of the front-month at-the-money straddle suggests a $1.73 move (7%) already baked into option premiums at present, and we are seeing heavy two-way traffic in August calls at strikes 20, 21 and 22, along with 22-strike puts.

CTSH, - Shares in technology consulting and outsourcing firm Cognizant Tech Solutions rose 4.5% to $29.32 on better-than-expected quarterly numbers, even as it offered discouraging guidance for the upcoming quarter. The news elicited an increase in options trading to 7 times the normal level as traders shed August 30-strike calls at 60 cents, essentially calling a top on the immediate upside. A volatility seller also appears to have written a 6,000-lot strangle in the October contract between strikes 25 and 32.50, taking in a $1.80 premium in the expectation that shares will remain rangebound between those strike prices into October.

ELN, - “Weekus horribilis” for drugmaker Elan took hold today after its multiple-sclerosis drug Tysabri was implicated in new cases of a lethal brain infection. Coming hot on the heels of another product disappointment – underwhelming data on a much hoped-for Alzheimer’s drug in development – Elan Corp shares were stripped of 50% of their value to read $9.86. The collapse put paid to options traders who believed this week’s first selloff would find some support at the $20 level – earlier this week we observed a good number of traders selling $20 August puts in a bet that the first selloff of the week was overdone. The magnitude of today’s surprise is perhaps best articulated by its implied volatility reading, which spiked 111% earlier in the session to 123.3% - more than any other company today. Tellingly, now that its share price has moved below the lowest strike available on the options calendar, our implied volatility reading has gone black. More than 423,000 options have traded as of this writing – equal to more than a third of its total open interest - with a slight volume privilege to puts. As we observed earlier this week, traders are playing both sides of the selloff, with two-way traffic in excess of open interest in August calls at strikes 12.50-19 and in puts at strikes 10-15.

BIIB, - The action was similar in Elan’s Tysabri partner Biogen Idec, whose shares are down 28% at $50.11 at present as options trade at 14 times the normal level, Earlier today we observed strangle positions going through in the front month at the 50/55 strikes. The combined premium of $3.75 would cover a buyer in the event of a recovery above $58.75 or continued collapse below $46.25, while a seller of this position would likely be taking advantage of the 51% spike in implied volatility this morning to take in a credit and wager on rangebound, depressed share price action over the next 2 weeks. In general, however, much of the heavy volume in the front month is trading to buyers as well as sellers, making it hard to get a handle on the prevailing order flow. Calls are outmoving puts by a factor of 1.7.

ANR, - Reports out this morning that steel giant ArcelorMittal may horn in on Cleveland Cliffs’ rocky acquisition of coal miner Alpha Natural Resources didn’t hurt shares in the coveted takeover target. Shares rose 6.3% to $105.19 and options volume of more than 41,000 qualified the company for our scan of top-50 most-traded companies this afternoon. Early action suggested traders positioning in long strangles at the 100/105 lines, a position that for a combined premium of $9.90 would cover the buyer in the event of a breakdown below $90.10 or above $114.90 – redolent of the heady sparks that could fly in a bidding war. Fresh positioning in the September 105 calls showed these contracts trading to buyers and sellers at $10.00 per contract.

ORCL, - With a fair amount of merger speculation moving options in the technology and biotech spheres this week, we continue to be fascinated with the manner in which option traders buy and sell volatility in companies active in the M&A space. To that end we point to action in Oracle’s March contract, which occurred against fairly humdrum price action, a .19% decline from yesterday’s levels to $21.49. In a raft of opening positions, a trader unloaded March puts at the 17 strike (trading at 65 cents per contract), the 19 strike (trading at $1.15), the 20 strike (trading at $1.45) and the 22 strike (trading at $2.35), and crossed the sentiment divide to sell March calls at the 24 strike for $1.35. A couple of scenarios may be going on here – the most prosaic being that the customer simply believes that March volatility is overpriced and is simply writing these puts in a bid to close them out cheaper later. Alternatively, he or she may be speculating that Oracle might be taken over for $20-24 in cash – or even hedging against a position aimed at Oracle being the acquirer (as they usually are these days) in a large transaction. We take pains to note here that there are no specific rumors regarding Oracle in this capacity, and we are careful not to propagate anything suggesting the contrary; the March activity is interesting noneth

MAR, - Dog days for the U.S. consumer have dogged hotel chain Marriott International relentlessly this season. Shares in the company (whose options have tended to show tremendous susceptibility to takeover chatter) are have lost $10 in value since May. Today, a boost in option trading volume to 3 times the normal level showed a trader electing not to play the contrarian (or the M&A game, for that matter), instead positioning for downside well in advance of the company’s next earnings cycle (numbers are due out on October 3). The fact that shares are trading 4% higher at $26.97 and implied volatility at 47.8% is well below the 57.9% historic reading likely added inducement for the trader to position defensively today. This was done via a 6,000-lot put spread in the October contract between strikes 20 and 25, a position added for a debit of $1.50, and requiring a decline to $23.50 – 11% off current levels – before the position begins to make money. This could imply a new break below the 52-week low of $22.29 before all is said and done.

A, - Unusual options action in Agilent Technologies, the maker of testing and measurement equipment for science and industry, suggests some traders looking for new break of the 52-week high in connection with its August 14 earnings or before. Options are trading at 4 times the normal level at present as shares register a decline of .17% to $36.00. Implied volatility at 34.5% comes in right in the middle of the 52-week range for Agilent but is elevated above the 24.8% historic reading on the stock. It appears here that a trader seized upon the marginal pullback in share price to buy a sizable position in 40-strike calls for 12 cents apiece. The price level here reflects about a 9% probability of the position landing in the money by August 15. Agilent shares last traded at the $40 level in mid-July 2007.

IP, - Options in cardboard and corrugated products maker International Paper continue to tear up the rug today with shares up another 2.8% to $28.49 – capping off a week in which its shares have racked up a full $6 to the upside on better-than-expected earnings. Yesterday its call volume shattered a new 52-week high and today we find its options trading at more than triple the normal level due to some fresh positioning in January 30 calls. This time around, it appears that the trader sold most of these options at about $2.10 apiece – taking in premium to take advantage of the rich time value of the position, and perhaps anticipating a correction in share price heading into January.

HBC- With Europe’s largest bank, HSBC Holdings, due to report interim earnings on Monday, option traders’ interest continues to focus on the September 70/80 put spread – a position that attracted volume earlier in the week. Shares are .84% higher at $83.20 at present, but a long buyer of the 70/80 put spread would pay a $2.15 premium today for a position that first breaks even with a decline to $77.85 (5% off current levels) by September 19. The 10,000-lot position here qualified HSBC Holdings for our early-morning scan of actively traded options.

RKH- Much of the tense news flow surrounding troubled regional banks has died down in recent sessions – and that’s had a sedative effect on option implied volatility in the Regional Bank Holders Trust, which has come down about 25% from its mid-July highs and now at 52.0% sits below the historical reading of 64.7% on the underlying stock. While it may be far too early for traders to be speculating on a recovery for the regional bank space, it looks like one trader used a 6,000-lot long collar in the November contract to protect hoped-for gains in an underlying stock position. This was done by buying 100-strike puts at $9.20 apiece and taking a little discount on the purchase by selling 125-strike calls for $2.90. The $6.30 price tag will protect the buyer against a drop below $100 in November, while the short upper strike will result in the underlying shares being called away – a fact that the trader may not mind, appreciating the added yield.

Today’s tickers: ELN, BIIB, ANR, ORCL, MAR, A, IP, HBC, RKH

ELN, - “Weekus horribilis” for drugmaker Elan took hold today after its multiple-sclerosis drug Tysabri was implicated in new cases of a lethal brain infection. Coming hot on the heels of another product disappointment – underwhelming data on a much hoped-for Alzheimer’s drug in development – Elan Corp shares were stripped of 43.6% of their value $11.26. The collapse put paid to options traders who believed this week’s first selloff would find some support at the $20 level – earlier this week we observed a good number of traders selling $20 August puts in a bet that the first selloff of the week was overdone. The magnitude of today’s surprise is perhaps best articulated by its implied volatility reading, which spiked 111% to 123.3% - more than any other company today. More than 263,000 options have traded in the first half hour of the market, with a slight volume privilege to calls. As we observed earlier this week, traders are playing both sides of the selloff, with two-way traffic in excess of open interest in August calls at strikes 12.50-19 and in puts at strikes 10-15.

BIIB, - The action was similar in Elan’s Tysabri partner Biogen Idec, whose shares are down 25% at $52.05 at present as options trade at 11 times the normal level, Earlier today we observed strangle positions going through in the front month at the 50/55 strikes. The combined premium of $3.75 would cover a buyer in the event of a recovery above $58.75 or continued collapse below $46.25, while a seller of this position would likely be taking advantage of the 51% spike in implied volatility this morning to take in a credit and wager on rangebound, depressed share price action over the next 2 weeks. In general, however, much of the heavy volume in the front month is trading to buyers as well as sellers, making it hard to get a handle on the prevailing order flow. Calls are outmoving puts by a factor of 1.7.

ANR, - Reports out this morning that steel giant ArcelorMittal may horn in on Cleveland Cliffs’ rocky acquisition of coal miner Alpha Natural Resources didn’t hurt shares in the coveted takeover target. Shares rose 6.3% to $105.21 and options volume of more than 23,500 qualified the company for our scan of top-50 most-traded companies ahead of the noon hour. Early action suggested traders positioning in long strangles at the 100/105 lines, a position that for a combined premium of $9.90 would cover the buyer in the event of a breakdown below $90.10 or above $114.90 – redolent of the heady sparks that could fly in a bidding war. Fresh positioning in the September 105 calls showed these contracts trading to buyers and sellers at $10.00 per contract.

ORCL, - With a fair amount of merger speculation moving options in the technology and biotech spheres this week, we continue to be fascinated with the manner in which option traders buy and sell volatility in companies active in the M&A space. To that end we point to action in Oracle’s March contract, which occurred against fairly humdrum price action, a .37% decline from yesterday’s levels to $21.45. In a raft of opening positions, a trader unloaded March puts at the 17 strike (trading at 65 cents per contract), the 19 strike (trading at $1.15), the 20 strike (trading at $1.45) and the 22 strike (trading at $2.35), and crossed the sentiment divide to sell March calls at the 24 strike for $1.35. A couple of scenarios may be going on here – the most prosaic being that the customer simply believes that March volatility is overpriced and is simply writing these puts in a bid to close them out cheaper later. Alternatively, he or she may be speculating that Oracle might be taken over for $20-24 in cash – or even hedging against a position aimed at Oracle being the acquirer (as they usually are these days) in a large transaction. We take pains to note here that there are no specific rumors regarding Oracle in this capacity, and we are careful not to propagate anything suggesting the contrary; the March activity is interesting nonetheless.

MAR, - Dog days for the U.S. consumer have dogged hotel chain Marriott International relentlessly this season. Shares in the company (whose options have tended to show tremendous susceptibility to takeover chatter) are have lost $10 in value since May. Today, a boost in option trading volume to 3 times the normal level showed a trader electing not to play the contrarian (or the M&A game, for that matter), instead positioning for downside well in advance of the company’s next earnings cycle (numbers are due out on October 3). The fact that shares are trading 3.2% higher at $26.74 and implied volatility at 48.2% is well below the 57.9% historic reading likely added inducement for the trader to position defensively today. This was done via a 6,000-lot put spread in the October contract between strikes 20 and 25, a position added for a debit of $1.50, and requiring a decline to $23.50 – 11% off current levels – before the position begins to make money. This could imply a new break below the 52-week low of $22.29 before all is said and done.

A, - Unusual options action in Agilent Technologies, the maker of testing and measurement equipment for science and industry, suggests some traders looking for new break of the 52-week high in connection with its August 14 earnings or before. Options are trading at 4 times the normal level at present as shares register a decline of .64% to $35.83. Implied volatility at 34.5% comes in right in the middle of the 52-week range for Agilent but is elevated above the 24.8% historic reading on the stock. It appears here that a trader seized upon the marginal pullback in share price to buy a sizable position in 40-strike calls for 12 cents apiece. The price level here reflects about a 9% probability of the position landing in the money by August 15. Agilent shares last traded at the $40 level in mid-July 2007.

IP, - Options in cardboard and corrugated products maker International Paper continue to tear up the rug today with shares up another 5% to $29.07 – capping off a week in which its shares have racked up a full $6 to the upside on better-than-expected. Yesterday its call volume shattered a new 52-week high and today we find its options trading at more than triple the normal level due to some fresh positioning in January 30 calls. This time around, it appears that the trader sold most of these options at about $2.10 apiece – taking in premium to take advantage of the rich time value of the position, and perhaps anticipating a correction in share price heading into January.

HBC- With Europe’s largest bank, HSBC Holdings, due to report interim earnings on Monday, option traders’ interest continues to focus on the September 70/80 put spread – a position that attracted volume earlier in the week. Shares are .18% lower at $82.36 at present, but a long buyer of the 70/80 put spread would pay a $2.15 premium today for a position that first breaks even with a decline to $77.85 (5% off current levels) by September 19. The 10,000-lot position here qualified HSBC Holdings for our early-morning scan of actively traded options.

RKH- Much of the tense news flow surrounding troubled regional banks has died down in recent sessions – and that’s had a sedative effect on option implied volatility in the Regional Bank Holders Trust, which has come down about 25% from its mid-July highs and now at 51.1% sits below the historical reading of 64.7% on the underlying stock. While it may be far too early for traders to be speculating on a recovery for the regional bank space, it looks like one trader used a 6,000-lot long collar in the November contract to protect hoped-for gains in an underlying stock position. This was done by buying 100-strike puts at $9.20 apiece and taking a little discount on the purchase by selling 125-strike calls for $2.90. The $6.30 price tag will protect the buyer against a drop below $100 in November, while the short upper strike will result in the underlying shares being called away – a fact that the trader may not mind, appreciating the added yield.

Another week that flew by.

Unfortunately, this week didn’t fly by in the "Oh wow, wasn’t that just amazing" sort of way, this week flew by like a guy who snatched a gold chain off your neck while he drove by on a bicycle - kind of a painless mugging if there can be such a thing.  We’re right back where we started from after 4 days and pretty much right where we were 5 days before that and a month before that.  The market went up, the market went down but when we zoom out to a more historical distance (say 5 years) all we really did is bounce off 11,000 and consolidate. 

That’s not really surprising considering the very conflicting signals we’re getting from pretty much everywhere.  Bespoke Investments put up a very interesting collection of headlines from various "trusted" sources telling us that yesterday’s GDP report was everything from "healthy" (Washington Post) to "tepid" (NY Times) to "below estimates" (CNBC) to "fastest pace since Q3 2007" (Forbes).  Come on fellas, it’s the economy we’re forecasting here, not an election - how about some certainty?

There is very little certainty on the stock market roller coaster we have all taken a ride on this month even though, in the end and just like a roller coaster, we didn’t go anywhere!  "Anger, fear, aggression. The dark side are they. Once you start down the dark path, forever will it dominate your destiny." -  Yoda (who would have made a great trader) also said: "The fear of loss is a path to the dark side."  Fear of loss is what the market hyenas prey on - you fear "the big loss" so you are more willing to take the immediate loss now, even though the future of your position remains uncertain.

Yesterday CNBC closed the day with Meredith Whitney, still dissing the banks despite the earnings coming out nowhere near her doom and gloom predictions and today they trotted out former Fed Chief turned bond pusher, Alan Greenspan to tell us (surprise) that "the US is nowhere near the bottom of the housing slump and is right on the brink of a recession."  Greenspan’s remarks came shortly after 3pm and knocked 150 points off the Dow in less than 60 minutes - the old boy’s still got it!

It’s Friday so it will be surprising to see a lot of capital committed ahead of the weekend.  GM earnings are… are… errr, I simply cannot think of a word to describe how bad it is for a $11.07 company to lose $11.21 per share in a single quarter.  Words simply fail to describe the sheer awfulness of this company.  This is a $6Bn company that lost $15.5Bn in 3 months - THEY MUST BE STOPPED!  It’s not about the workers, there are 266,000 employees at GM and the company lost $56,390 PER EMPLOYEE or $18,796 a month PER EMPLOYEE - surely it would be smarter to just give them the money directly and stop pretending to run a car company, it’s no longer even funny!

Sadly, GM is still a Dow component and somehow analysts (there are 13 "professional" analysts who follow GM for a living) "only" predicted a loss of $2.62 a share on the average with a range from -.72 to - $4.02.  Does GM matter anymore?  I certainly hope not and that’s one of the reasons I can’t take the Dow chart seriously.  First of all, they switched MO and HON for CVX and BAC.  CVX is down over 10% since the switch and BAC is off more than 20%, depsite the big comeback.  GM is down 75% from last year and, of the other 27 Dow components,  AIG, AXP, C, GE (1/2) and JPM are finacials (boo, hiss) and AA and XOM join CVX as commodity pushers. 

BA has been slaughtered, CAT has taken a dive, GM needs Kervorkian, not Kirkorian, HD is in housing (boo, hiss), INTC is a semi (arrrg!), MRK and PFE are train wrecks unto themselves and MSFT is run by Steve Ballmer (say no more).  Wow, what a motley crew to represent American industry in the 21st century!  How about we scrap the whole thing and make a Dow that has no more than 4 companies from any given sector (Basic Materials, Conglomerates, Consumer Goods, Financial, Healthcare, Industrial Goods, Services, Technology, Utilities) and let’s make sure those companies have been relevant in the past 5 years at least. 

So stop watching the Dow and stop listening to people who are drawing Dow charts.  Yes, we talk about the Dow all the time because it’s big and in your face and it moves the markets but let’s not lose site of what a very poor indicator of US economic health it is.  The Dow is underperforming the Nasdaq and the Russell by 7% in the past 12 months, and is underperforming the NYSE and the S&P by 3%, which are also bloated with financials and energy stocks - the very things we NEED to rotate out of in order for us to build a better rally.  Take a look at these earnings - this is not a catastrophe!  Even guidance is generally flat.  In-line guidance when everthing you are hearing from the MSM is panic is a sign of a bottom, not the top of Greenspan’s slide.

To invest we need a premise and mine remains cautiously optimistic based on falling commodity prices (copper is still way too high at $365 and needs to break what looks like an uptrend to spook the metals markets), especially oil, which I’ve mentioned often enough is the key to everything.  The dollar needs to recover (over 75) and housing has to bottom, which doesn’t mean it can’t go down further (prices still too high) but we’re looking for some fresh money to come off the sidelines there as well.  That’s all we need to turn this market frown upside down - until we get it, we watch and wait.

They (whoever "they" are) have been assaulting us non-stop during the market’s 20% slide with some of the worst-sounding economic forecasts in a generation but if you are old enough to remember the late 70s and early 80s, when 1 out of 4 people you knew were out of work and mortgage rates were in the teens, then you know that things are simply not that bad right now.  The market rode out the recession from 1979 through 1987 with a 100% GAIN as Paul Volker RAISED rates over and over and over to get inflation under control for the first 4 years, then brought them back down for the second half of his term.

So let’s not fear change, we need change because staying the course has been a bit of a disaster for the last 4 years.  It’s very easy to give up and walk away, that’s what the chart above is telling us.  "They" can’t buy your stocks if you don’t sell them so think about the company you own before you quit on it.  You will hear analysts say they want to see capitulation, a big, dramatic sell-off and they are upset they are not getting it and I think trotting out Whitney and Greeenspan to tell us the world is about to end is their way of fomenting that bottom.  Have you panicked?  Have you capitulated?  Are you despondent?  If so, good, it’s time to rally!

Jobless rates did hit a four-year high this morning with 51,000 more jobs lost in July, the seventh consecutive decline which pushed unemployment to 5.7%.  This is NOT as bad as expected (as our expectations are soooooo bad) and we’ll see how the markets take it but the weekend looms large and GM’s earnings were a real catastrophe that more than offset what XOM made yesterday (and XOM was punished for that!).  We have our own catastrophe as we attempted to bottom fish ELN this week only to find they have a whole new bottom as their second major drug (Tysabri) comes under fire in one week.  Just this past weekend, the company reiterated they Tysabri had not had any negative side effects since the last scare - oops!

Asia was mostly down but China’s president Hu Jintao lifted the Hang Seng and the Shanghai with a pledge to maintain economic growth "despite increasing challenges."  China also increased the amount banks can lend by 5%, aiming to make credit more available to small businesses that have been hit hard by high energy costs.  This is, unfortunately, supportive of high energy costs.  Europe was way down but recovered on our jobs report, almost flat at 9 am. 

So I’d love a nice rally today as it will put a stake in Greenspan’s heart and we can finally shuffle him off to a home for the no longer relevant.  Let’s remember, it was Greenspan who blew this housing bubble in the first place and, rather than letting it deflate naturally, he gave the green light to ARM loans, turned a blind eye to bad bank practices and, when all that started falling apart, lowered rates almost to zero and created a commodity bubble all the while telling Congress that everything was under control.  Now that he works for the bond-pushers at PIM(p)CO, he’s telling you how screwed we are by bad government policies.  

Damn, we are one gullible bunch of fools in this country!