Cusick’s Corner: Gold Melting

Well, if you generally like to be a bear then you probably would have liked participating today in the precious metals markets — XME/GLD/SLV, and Miners, GDX. The bottom has dropped out in this space. It’s not a positive for the market at this stage, and deeper lows with this close look to be potentially in the cards. I will be looking for some potential setups in this space that attempt to take advantage of this new trend. Now some might say that the move in Gold has not been reflected in Volatility, VIX +.65%, which is only up a small amount with the move in Gold. There was also a huge move in Bonds, TLT +1.46%, this does put some concern going into next week in spite of the fact the market is finishing well off the worst levels of the day.  Have a great weekend.

Market Recap

Stock market averages fell on weak economic data, but the decline has been orderly and without much volatility. A report released before the opening bell on Retail Sales was down .4 percent for March and well below expectations of 0 percent. Separately, PPI for March was down .6 percent, vs. expectations of -.1 percent. A third piece of data didn’t help much after the University of Michigan said its gauge of consumer sentiment dropped to 72.3 for April, from 78.6 and well below expectations of 78.0. Meanwhile, Wells Fargo (WFC) and JP Morgan (JPM) are down on earnings and big losses are being suffered in oil and gold. Crude dropped $2.3 and gold is off more than $65. Yet, on Wall Street, the Dow Jones Industrial Average is down just 29 points. With an hour left to trade, the NASDAQ is down 12.2 points.

Today’s Bullish Trading

Ford Motor (F) is down 7 cents to $13.48 amid weakness in the broader market Friday and options on the auto-maker are seeing active trading. 71,000 calls and 38,000 puts so far. The largest trade (by number of contracts) is a 20,000-contract block of Weekly 14 calls that expire on 4/26. An investor bought the calls for 8 cents per contract, according to a source on the exchange floor, and appears to be opening a new position in Ford options. 21,900 of these Weekly calls now traded against 1,825 in open interest. The action in the stock might reflect expectations that Ford shares could roll higher into an April 24th earnings report. The Weekly (4/26) 14 calls, which are currently 3.9 percent out-of-the-money, expire two days after the company is due to report.

Today’s Bearish Trading

Macy’s (M) is up 18 cents to $44.49 and climbing to new 52-week highs today after the company’s CEO gave an outlook on CNBC Friday. Options volume on the stock is roughly 20,000 puts and 8,240 calls. The top trades are part of a spread, in which the investor bought 6,400 May 44 puts on Macy’s for $1.13 per contract and sold 6,400 May 31 puts at 30 cents. The spread, for 83 cents, appears to be a new position because volume exceeds open interest in both contracts. If so, a shareholder might have initiated the position as a type of protective strategy after the recent rally in Macy’s and ahead of earnings. The company is expected to report around May 15.

Bearish trading was also seen in Myriad Genetics (MYGN), Immunogen (IMGN), and Flotek (FTK).

Index Recap

Overall options were very light Monday and Tuesday, two of the slowest days of the year, then picked up dramatically Wednesday and Thursday, but are now slowing again heading into the weekend. In the CBOE Volatility Index (.VIX) pit on the Chicago Board Options Exchange, for example, 244,000 calls and 111,000 puts traded so far today, which is only 60 percent the normal levels, according to Trade Alert data. Volumes are likely to pick up Monday and Tuesday, as it will be the last two days to trade April options on VIX before the contracts expire Wednesday (most other products expire at the end of the week). VIX is up .07 to 12.31 and well below the levels seen last week when it finished at 13.92.

Analyzing the ETF Market

SPDR Gold Fund (GLD) saw volatile action today as the yellow metal suffered steep losses. Gold was recently down $66 to $1498.6 and its lowest levels since mid-2011. GLD, which is an exchange-traded fund that represents ownership in the metal, is down $7.09 to $143.96 on very heavy turnover of 47 million shares. 245,000 calls and 356,000 puts traded on the ETF so far. April 144, 140 and 135 put are the most active, as some investors are possibly looking for the slide to continue next week and are taking positions in April puts that expire in 7 days. Meanwhile, 30-day implied volatility is up 32 percent to 18.5.