Cusick’s Corner – Another Fat Finger Trade?

Cusick’s Corner
With mixed economic data, Claims came in little worse than expected, the world’s largest CEO resigns, volatility is still high and the market bounced and pulled back after someone over in Europe decided it was a good time to cram the DAX (which will be known by tonight as the fat sausage finger trade). At this stage I am trading strategies that take advantage of the market volatility like in Gold, GCZ11 holding 1750, by using ratio spreads. Here’s an example — if you are a bull in Gold, buy one OTM put and sell 2 further OTM puts in the same expiration month. This strategy takes advantage of that skew which is in the Gold market after the parabolic rise this last week. The risk in that strategy is if the Gold market is below the strike of the option you sold then you will start to get long Gold. This is a more complex and sophisticated trade so go to our Education Center and read up on this strategy. I am also putting on some credit spreads in the Financials, currently working a WFC credit strategy, again trying to take advantage of the big volatility in these names. See you After Hours.

Stock market averages are lower on a busy news day Thursday. Apple Computer (AAPL) is in the spotlight and seeing heavy trading on news late-Thursday that CEO Steve Jobs is stepping down. AAPL is off 1percent. However, Bank of America (BAC) shares surged 25 percent Thursday morning and were recently up 6 percent after Buffett’s Berkshire Hathaway announced plans to invest $5 billion into the bank. The only economic stat of the day was a disappointment. According to the Labor Department, filings for jobless benefits increased by 5,000 to 417,000 in the week ended August 20. Economists were looking for a decline of 12,000. A sharp reversal in Germany’s DAX is also weighing on Wall Street. After trading higher early, the benchmark tumbled 4 percent in afternoon trading and closed down 1.7 percent. The intraday volatility across the Atlantic seems to have spilled over into US trading and the Dow Jones Industrial Average is down 175 points through midday. The tech-heavy NASDAQ lost 44.4. CBOE Volatility Index (.VIX) jumped 3.95 to 39.85. Overall options volume is running about the typical levels, with 5.1 million calls and 5.9 million puts traded across the exchanges through 12:30pm ET.

Implied Volatility Mover
Collective Brands (PSS) implied volatility is easing after the company reported better-than-expected earnings. The footwear retailer also announced plans to shut 425 stores and said it had hired advisory firms to explore strategic alternatives. PSS has added $2.02 to $12.30. Options volume is 9X the average daily, with 17,000 puts and 6,050 calls traded in the name. September 12 puts and calls are the most actives, as some players might be selling-to-exit positions in these at-the-money short-term contracts. Implied volatility is down 16.5 percent to 59.5.

Joe Cusick

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Joe Cusick

Joseph Cusick is currently Vice President of Wealth and Asset Management at MoneyBlock. Joseph is passionate about marrying his 20 years of market experience and the powerful tools at MoneyBlock with the goal of empowering wealth managers with the tools to better manage and grow their business. Joseph was previously the Senior…