Focus on US-Dollar 11-08-2010

Cusick's Corner
The rally lost its momentum today and the markets had a small sell-off. However, because of the slow news day and lack of any market data, most market participants focused on the action in the US Dollar that maintained its morning advance into the afternoon. Some upcoming data later this week -- several retailers will announce earnings which will help gauge consumer spending this holiday season. See you Midday.

It was a day of sluggish and uninspired market action Monday. With no economic data or major earnings releases to guide the morning trading, stock market averages drifted lower in cautious action after big gains scored the week before. Some of the focus remains on the gyrations in the currency markets after the dollar edged modestly higher against some of the other majors. However, not much volatility was seen in the dollar or across global financial markets Monday and, at the end of the day, Wall Street finished mixed. While the Dow Jones Industrial Average lost 37 points. The NASDAQ added 1.00. The CBOE Volatility Index (.VIX) edged up .01 to 18.27. Trading in the options market was running about the typical levels and with clearly more call than put volume. About 10.3 million calls and 5.6 million puts changed hands.

Bullish Flow
Silver Wheaton (SLW) shares rallied and options volume hit 3X its normal levels ahead of earnings. Shares of the Vancouver-based silver company added $2.12 to $35.07. Meanwhile, 51,000 calls and 31,000 puts traded in the name. November 34 and 35s were the most active call options. December 32 and 35 puts saw interest as well. Implied volatility jumped 8 percent, as it appears that some investors were bracing for a big move in SLW. The company is due to report after the close of trading today, but as of this writing, has not yet posted the results.

Bullish options action was also seen in Commscope (CTV), MGM, and Western Refining (WFR).

Bearish Flow
Las Vegas Sands (LVS), which has been ripping higher in recent days, added 82 cents to $52.80 and is now up 28.6 percent since the casino-operator reported earnings on 10/27. One strategist seems to be bracing for a pullback or perhaps looking to lock in gains, as a massive put spread traded in LVS. In this trade, the strategist bought 20,000 January 52.5 puts at $5.50 and sold 40,000 January 45 puts at $2.21. This ratio spread, at a net debit of $1.08, looks like a defensive play, as it makes its best profits if shares fall to $45 by the January expiration. By selling twice as many puts (compared to puts purchased), they are also stating that they're willing to buy the stock if shares trade below $45 between now and then.

Bearish flow also picked up in Jo Ann Stores (JAS), Aeropostale (ARO), and International Game Technology (IGT).

Index Trading
The KBW/PHLX Bank Sector Index (.BKX) saw another big trade Monday. We noted in the previous market wrap that 70,000 March 52 calls traded on the index Friday, including a buyer of 40,000 at $2.25. The index edged down .39 to 48.38 today and another 40,000 March 52 calls traded. According to a source on the floor, this massive block of calls was sold at $2.25. So, this strategist might have had a sudden change of heart. That is, after buying to open the position Friday, they offset it through a liquidating trade Monday.

ETF Trading
Market Vectors Junior Gold Mining ETF (GDXJ) shares touched a new 52-week high and finished up $1.31 to $41.82 after gold (December) rose $10 to $1047.70 an ounce. Meanwhile, options volume in the ETF hit 4X the recent average daily, with 34,000 calls and 7,060 puts traded on the exchange-traded fund. Trading was brisk in the February 40 calls. One strategist sold 10,000 contracts. They also bought 8,000 of the February 46 calls and 4,500 December 43 call options. This looks like a roll. That is, the investor was liquidating a position in the in-the-money $40 calls and taking new positions in the out-of-the-money $43 and $46 call options. If so, they might have been bullish on the fund and are banking profits, but also opening new positions in anticipation of additional gains.