Consumer Confidence Out Tomorrow 09-26-2011

Cusick's Corner
The market popped into the After Hours in the equities while the slide out of precious/industrial metals, i.e. Gold & Silver, continued. This bounce in the short-term does make sense, especially with the amount of capital that has been moved out of the metals and fixed income that needs to get to work. We also saw oil perk up today, finishing in the green and stimulating the market. With the moves in the currencies and headlines out of the EU, I will be watching the Consumer Confidence number that comes out tomorrow. If the incomes of the consumers are in fact weakening, velocity could shift to the downside quickly. I strategically have been looking for some out-of-the-money calendar strategies to take advantage of front month volatility pops, especially in Financials and select Tech names. See you Midday.

The overall tone of trading on Wall Street turned decidedly more positive Monday 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 in the Eurozone after EU officials met over the weekend and discussed plans to increase the size of the $595 billion rescue fund. The domestic economic news was light and included the latest New Home Sales for August, which fell to 295K from 302K in July and in-line with expectations. Meanwhile, JP Morgan (JPM) shares rallied 7 percent and were the best gainers in the Dow today after the bank made a presentation at a private equity conference Monday. But all thirty Dow stocks moved higher, and after last week's 6.4 percent plunge, the industrial average added 273 points. The tech-heavy NASDAQ battled back from early losses and added 33.5.

Bullish
An interesting combination play trades in Novagold Resources (NG) today. Share of the Vancouver-based gold miner finished the day up 46 cents to $7.38 despite another day of losses on the yellow metal. Gold is down $17 to $1620 an ounce. Meanwhile, in Novagold options action, the top trades were part of a bullish ratio risk-reversal in which the strategist apparently bought 10,000 Jan 7.5 calls on the stock at 88 cents and sold 8,800 December 7 puts at $1.05. The strategy appears to be a new position. If so, it seems to be a bet that shares will hold above $7 through the December expiration and rally beyond $7.5 through January 2012. If shares fall below $7 and the position is held through the December expiration, the strategist will be asked to buy (have put) the stock at $7. The bullish combo traded multiple times. More than 50,000 Jan 7.5 calls on Novagold traded. Another 44,000 Dec 7 puts changed hands.

Bearish trading was also seen in Fortinet (FTNT), Plains Exploration (PXP), and Mosaic (MOS).

Bearish
Dollar Thrifty (DTG) loses 11 cents to $59.47 Monday and options volume on the car rental company was 12X the daily average today after 17,000 puts and 275 calls traded on stock. The top trades of the day were part of a spread, in which the strategist apparently sold 7,000 October 55 puts on DTG at $2.70 and bought 7,000 November 55 puts at $4.60. In other words, an October - November 55 put spread was bought on Dollar Thrifty for a $1.90 net debit. The strategist might be looking for the stock to hold above $55 through the October expiration (25 days) and then dip below that price through November expiration (53 days).

Bearish trading was also seen in Eastman Kodak (EK), Tiffany (TIF), and Computer Associates (CA).

Index Trading
PHLX Bank Sector Index (.BKX) saw more volume than usual. The index, which tracks the price action of two dozen leading banking names, added 1.85 to 36.85 and is now up 9 percent from a 52-week low set intraday Thursday. Options volume on the bank index hit 22X the daily average after one investor sold 9,000 November 41 calls on BKX at 62.5 cents per contract. The action appears opening because there is no existing open interest in the BKX Nov 41 calls. If so, the trade seems to be a bet that the index will hold below 41 (11.3 percent) through the November expiration. If not, the strategist will be on the hook to pay, in cash, the difference between the settlement value of the index at expiration and the 41 strike price (X100).

ETF Action
iShares Germany Fund (EWG) shares jumped 64 cents to $18.39 and options volume in the ETF hit 3X the daily average, driven by increasing interest in October 21 call options. Volume approached 10,000 contracts against 1,682 in open interest. The top trade was a 4,400-contract block at 35 cents per contract when the market was 15 to 35 cents. The call buying comes one trading day after shares hit a 52-week low of $17.15 Friday. EWG, which holds shares of Germany's leading publicly-traded companies, has rebounded 7.2 percent since that time. October 21 calls on the Germany Fund are now 22.5 percent out-of-the-money with 25 days of life remaining. If shares fail to rally 21.5 percent and beyond $21 through the expiration, the calls expire worthless.