Where’s the Silver Lining? Cusick’s Corner

Cusick’s Corner Commentary by Joe Cusick – October 11, 2012 The market gave up most of the pop that we had on the open and equities continued to trade mixed. I mentioned the Semis last week and the bearish action continues with AMD as the latest chip maker to lower guidance for Q3 ahead of earnings. This also impacted the early strength in the Silver markets, SLV -.15%; it will be interesting to see if the consolidation continues post this latest news out of AMD. Tonight’s entertainment will be the VP debates which could be bigger than Dancing with the Stars and the Voice combined — might lead to some interesting trade while I watch.

Market Recap

Stock market averages gave up morning gains and finished with losses Thursday. The Dow Jones Industrial Average rose as much as 80 points early after the Labor Department said that jobless claims fell to 339K last week, from 369K and much better than the 370K that were expected. Separately, the Trade Balance for August showed an increase to $44.2 billion, from $42.5 billion and a bit more than the $43.8 billion that was expected. A third piece of data showed import prices climbing more than expected last month. The jobs data seemed to hold the most weight, however, and equity markets saw a lift across the Eurozone as well. A 1.4 percent move in France’s CAC 40 Index led the advance. The euro edged up .4 percent to 1.2925 against the dollar. Crude oil prices ticked $1.15 higher to $92.4 and gold gained $3.7 to $1768.8. On Wall Street, the Dow had trimmed its gains to only 30 points through midday after White House Chief of Staff Erskine Bowles told CNBC viewers that the looming fiscal cliff in Washington is a risk not fully factored into the stock market today. Talk that one large state failed to report its claims data, which resulted in the unusual drop weekly jobless claims Thursday, also seemed to put a damper on sentiment in afternoon action. Consequently, at the closing bell, the Dow Jones Industrial Average was down 19 points and 102 points from session highs. The NASDAQ dropped 2.4 points.

Today’s Bullish Trading

Bullish trading in Sprint was highlighted in the midday update after the stock rallied around news Softbank is mulling making a substantial investment in the phone company. Clearwire (CLWR), an infrastructure company that builds some of the networks used by Sprint, rallied on speculation that, like Sprint, Softbank has the company on its radar. CLWR surged 70 percent to $2.22 on heavy volume of 168 million shares. Meanwhile, 113,000 calls and about 3,000 puts traded in the name which is almost 80X the daily average options volume for CLWR. November 2.5 calls, which are now 12.6 percent out-of-the-money and expiring in five weeks, were the most actives. 77,255 traded. October, November, and December 2 calls on the stock were busy as well.

Bullish trading was also seen in Sprint (S), Alpha Natural Resources (ANR), and AMD.

Today’s Bearish Trading

Ross Stores (ROST) saw relative weakness and increased options activity Thursday. Shares of the apparel retailer lost $2.01 to $62.17 and options volume on the stock was 4X the daily average. About 13,000 puts and 1,765 calls traded on the ticker. Much of the volume was due to spread trading. One investor bought the November 55 – 60 put spread on ROST today for 75 cents per spread, 3000X. That is, they bought 3,000 of the November 60 puts for $1 and sold 3,000 November 55 puts at 25 cents each. The spread traded 5000X on the day and appears to reflect concerns about additional losses for the stock through the November expiration. It might be related to earnings. The company is due to report results around November 15.

Bearish trading was also seen in AT&T (T), Verizon (VZ), and Time Warner (TWX).

Index Recap

CBOE Volatility Index (VIX) slipped again amid light volumes and little net movement for the market averages Thursday. The S&P 500 Index (SPX) traded in an 11-point range but finished up just .28 to 1,432.84. Meanwhile, VIX, which tracks the expected or implied volatility priced into SPX options, dropped .70 to 15.59. Trading was light in the VIX pit, with just 255,000 calls and 108,000 puts traded. A total of 527,000 calls and 603,000 puts traded across all index products, which is only 83 percent of the recent daily average levels, according to Trade Alert data. Macro players in the index market might be in a wait-and-see mode following a relatively light week of economic news, but ahead of a flood of earnings and economic releases in the week ahead.

Analyzing the ETF Market

Teucrium Corn Fund trades under the easy-to-remember ticker symbol CORN and is an exchange-traded fund that attempts to track corn prices through futures contracts. Shares rallied $1.89 to $49.24 Thursday after the grains rallied on a USDA crop report showing falling global supplies. CORN was up 4 percent, but some players in the options market don’t seem convinced the rally can hold. 7,340 puts and 2,425 calls traded on the ETF today, led by opening activity in the November 50 and 55 puts, which expire in 36 days.

Joe Cusick