Slovakia = Uncertainty 10-11-2011

Cusick's Corner
Today was a day of rest and that could be expected after the move that we experienced over the last five sessions. We finished the day relatively benign and technically there was a clear Doji (look at the day charts, the S&Ps look like a +), meaning I will be watching to see if this is a rest by the bulls or a momentum loser. With a falling dollar, Bonds, and rising equities and commodity markets, risk is garnering much more of an appetite, plus the dollar is backing off which is stimulating that feeding frenzy. The FOMC minutes will be out and there will be a lot of eyes on the Claims data Thursday which will put retail names, XRT, potentially in the spotlight. See you Midday.

Stock market averages finished mixed on a slow trading day. With no economic data to guide the morning action, the Dow Jones Industrial Average slid at the open after a 330-point surge the day before. There wasn't much news from overseas and, while stocks rallied in Hong Kong and Tokyo, trading was sluggish across the Eurozone. At the same time, after rallying more than 2 percent against the buck Monday, the euro slipped in morning trading but is up modestly, to 1.365, in late-day action Tuesday. Trading in the commodities market was quiet as well. Crude oil edged up just 6 cents to $85.47 and gold lost $3.1 to $1667.7 an ounce. Overall, there wasn't much to move stocks on Wall Street today. The Dow Jones Industrial Average finished the day down 17, but the tech-heavy NASDAQ rose 17 points.

Bullish
Goldman Sachs (GS) saw noteworthy spread trading. Shares opened the day lower, at $94.56, and fell to $94 after Citigroup analysts cut third quarter earnings estimates on the investment bank. As the stock dipped lower in morning action, one or more investors were buying October 105 - 110 call spreads on GS. 2,500 traded at 57 cents on the International Securities Exchange. In this strategy, the investor bought 2,500 October 105 calls at 80 cents and sold 2,500 October 110 calls at 23 cents. It's an aggressive play, as both contracts will expire worthless and the debit is at risk if GS holds below $105 through the October expiration - in 10 days. The spread traded 6000X in morning action and the timing has been good so far. GS finished the day up 56 cents to $96.70 and $2.70 off session lows. The spread is now offered for 76 cents.

Bullish trading was also seen in Genworth (GNW), Leap Wireless (LEAP), and Sony (SNE).

Bearish
A sizeable put spread trades in Intel (INTC) Tuesday morning. Shares of the world's largest chipmaker added 11 cents to $22.99 and in early action, one investor bought a block of 16,000 December 21 puts on Intel for 72 cents and sold 32,000 December 18 puts at 23 cents. In other words, a Dec 21 - 18 (1X2) put ratio spread was initiated for a 26-cent net debit. The position looks opening, because volume exceeds open interest in both contracts. If so, it's a bearish play that offers a max payout if shares fall to $18 (~21.7 percent) through the December expiration. The debit is at risk if shares hold above $21 and the position is held through the expiration. There is additional risk to the downside with put ratio spreads, because only half of the 18s (which were sold) are covered by the 21s (which are bought). This bearish spread might be to hedge stock and comes ahead of Intel's earnings, October 18.

Bearish trading was also seen in Tempur Pedic (TPX), Wells Fargo (WFC), and STEC.

Index Trading
CBOE Volatility Index (.VIX) options were actively traded Tuesday. The market's "fear gauge" finished a rather quiet day of trading down .16 to 32.86. VIX is now down 27.7 percent from recent highs of 45.45 set last Monday. Meanwhile, in options action today, 432,000 puts and 160,000 calls traded on the volatility index. November 25 puts were the most actives and the volume included a 55,000 contract block at 40 cents when the market was 35 to 40 cents. At the end of the day, 138,733 contracts traded on the day against 86,130 in open interest. It appears that opening put buyers were driving the flow and bracing for VIX to fall back to the mid-20s through mid-November. Futures traders with long positions in VIX might have initiated the put purchases as a hedge.

ETF Action
SPDR Oil Exploration and Production Fund (XOP) is an exchange traded fund that holds shares of major oil companies like Chevron and Exxon. XOP added 28 cents to $47.33 on a relatively slow day for the energy markets. Crude oil was recently up 6 cents to $85.47 per barrel. Meanwhile, in XOP options action, December 30 puts saw noteworthy trading. One player bought 24,700 for 50 cents per contract. Another 10,000 traded for 51 cents. At the end of the day, 35,830 changed hands. The action is interesting, as Dec 30 puts on the ETF are 36.6 percent out-of-the-money and XOP has not traded south of $30 since July 2009. An investor with a large portfolio of energy-related names might have bought the puts as a short-term hedge. Or, the flow might be closing activity, as open interest in the contract is 67,765 and currently the biggest options position in XOP.