Stay Versatile 09-26-2011

Cusick's Corner
I took a look at the S&Ps over the last 12 years, if you bought SPY on November 1, 1998 and held the position, today you would be looking at a flat return. You would also see that the buying power that you had in the Dollar is down over 30% over the course of time as well. I do this exercise to really highlight the importance of a proactive approach to your investments, especially when you have a marketplace that is liquid and has products like options that help you to be versatile and more nimble. With the latest move in Gold, Silver, and the velocity of these pullbacks is unbelievable, another bubble bursts. Now this move highlights the importance of discussing fixed risk reward strategies. See you After Hours.

Stocks market averages are holding gains through midday. The overall tone of trading turned a bit more positive on Wall Street after Europe's equity markets moved higher on diminishing concerns about the European Debt Crisis. Germany's DAX jumped 2.9 percent and helped pace the advance after EU officials met over the weekend and discussed plans to increase the size of the $595 billion rescue fund. The domestic economic news is light and included the latest New Home Sales for August, which fell to 295K from 302K in July and in-line with expectations. Meanwhile, Boeing (BA) gained 3.9 percent and is the Dow's best gainer after delivering its first 787 aircraft to Japan Nippon Airways. After last week's 6.4 percent plunge, the Dow Jones Industrial Average is up 148 points at midday. The tech-heavy NASDAQ is lagging and has added just 1.6 points. CBOE Volatility Index (.VIX) edged up .10 to 41.35. Overall options volume is light, with 4 million calls and 3.7 million puts traded across the exchanges through 12:30pm ET.

Bullish Flow
Options on the SPDR Gold Trust (GLD) are seeing brisk trading. It's another rough day for the yellow metal. Gold is down $32.30 to $1,605.40 an ounce. Meanwhile, GLD, which is the exchange-traded fund that holds the precious metal, is down $2.94 to $156.86 and has plummeted 11.2 percent over the past four trading days. The volatility in the metals market is driving a lot of action in the gold ETF, with 142,000 calls and 194,000 puts traded on the fund. The top trades of the day appear to be part of a bullish combination play, in which the investor sold 4,645 November 149 puts on the fund at $5.50 to buy 4,645 March 182 calls at $6.20. They might expect shares to hold above $149 through the November expiration and also rally beyond $182 through March 2012. It's a bold move. If the action remains volatile and shares below $149 (-5%), the put seller would be on the hook to buy shares at that price through the November expiration.

Mosaic (MOS) is down $1.46 to $56.24 and, after a seven-day 20.7 percent slide, is touching new 52-week lows today. Options volume on the Ag chemical company is interesting today, as 26,000 calls and 9,000 puts have traded in MOS so far. The top trade of the day is a buyer of 4,400 October 65 calls on the stock at 90 cents per contract. 11,155 now traded. Oct 65 calls on MOS are 15.6 percent out-of-the-money and expire in 25 days. Some players might be taking positions on hopes the stock can recapture that level through the October expiration. MOS was trading for more than $71 per share before the slide started less than two weeks ago.

Bearish Flow
Eastman Kodak (EK) is taking a 59-cent hit and now trades at just $1.79 after the company announced plans to tap a $160 million line of credit. Shares fell on cash flow concerns and options volume in Kodak is running more than twice the daily average. 29,000 calls and 41,000 puts traded on the stock so far. The top trade is a buyer of 20,000 January 2013 $1 puts at 45 cents per contract. The play, which looks like a new position, might have been bought on concerns about additional weakness in shares through January 2013. A shareholder might have initiated the trade to help hedge a position in stock.

Tiffany (TIF) loses $2.18 to $68.35 and the top options trades on the New York-based jeweler include a spread, in which the strategist apparently bought 1,300 October 65 puts on the stock at $2.46 and sold 1,300 October 55 puts at 61 cents. In other words, they initiated an Oct 65 - 55 put spread for a $1.85 debit, 1300X. The spread has traded more than once and volume in both contracts is more than 2,000. The activity looks like new positions because volume exceeds open interest in both contracts. It seems to be a bearish play, as it will offer its best payoff if shares fall to $55 or less through the expiration, which represents a 19.5 percent decline over the next 25 days.

Unusual Volume
ProShares Ultra Short Silver Fund (ZSL) options volume is running 3X the (22-day) average, with 24,000 contracts traded and call activity accounting for 74 percent of the volume.

El Paso (EP) options volume is 5.5X the average daily, with 24,000 contracts traded and call volume representing 55 percent of the activity.

Plains Exploration (PXP) options volume is running 2X the average daily, with 13,000 contracts traded and call volume representing 82 percent of the total volume.

Increasing options activity is also being seen in Ivanhoe Mines (IVN), Sara Lee (SLE), and Market Vectors Russia Fund (RSX).

Implied Volatility Mover
Plains Exploration (PXP) edged up a nickel to $23.05 and implied volatility is moving higher amid increased call options activity on the Houston, TX oil and gas company. 11,000 calls and 2,430 puts traded in the name so far. Oct 28 calls, which are 21.5 percent out-of-the-money and expire in 25 days, are the most actives. 3,120 traded. October 22, 23, and 27 calls are busy as well. Looks like buyers are driving some of the flow in PXP options, as implied volatility in the options on the stock has moved up 8 percent to 75.