Industrial Gold 05-27-2011

Cusick's Corner
The market pulled back into the afternoon but never jeopardized any critical levels. Commodities bounced back today, especially as the Buck continued to pull back and the market was looking to get into some safety over the long weekend. Another positive point is that Copper, industrial gold, has been a nice tear due to potentially rising supply concerns. It's time to go fire up the grill -- see you Tuesday. Have a great weekend!

The Stock market averages held gains and trading was slow ahead of the three-day Memorial Day weekend. The consumer was in focus early after data released before the opening bell showed Personal Incomes and Spending both increasing by .4 percent in April. Economists were looking for incomes to rise by .4 percent and spending by .5 percent. The University of Michigan was released later. The index increased to 74.3 in May, from 72.4 mid-month and better than the 72.4 that was expected. However, Pending Home Sales unexpectedly plummeted 11.6 percent last month. Economists were looking for a decline of just 1.4 percent. Investors seemed to shrug off the mixed data and stock market averages were higher through midday. A rebound in the euro is possibly easing some recent worry about the European Debt Crisis. The currency is strong after ECB member George Provopoulos said that Greece can handle its debt payments. The euro gained 1 percent against the dollar.

Bullish
CVS Caremark (CVS) shares closed up and calls were actively traded after the company won an important contract away from rival Medco Health Solutions (MHS). The agreement involved a Regence Blue Cross/Blue Shield government-wide pharmacy benefits plan. MHS, which was highlighted in the midday report, is down 9.7 percent. Meanwhile, CVS touched a new 52-week high today and closed up 65 cents to $38.80. Options volume was 3X the average daily. 40,000 calls and 10,000 puts have traded in the name. January 40 calls, which are now 3 percent out-of-the-money, were the most actives. Some investors might be taking positions on hopes CVS can continue to forge new highs through early-2012. January 35 and June 40 calls saw brisk trading as well.

Bullish trading was also seen in American Eagle (AEO), Marvell Tech (MRVL), and MagicJack VocalTec (CALL).

Bearish
Overseas Shipholding Group (OSG) closed up .02 at $27.02 per share and options volume in the New York-based shipping company is 3X more than the recent (22-day) average. At the same time, put volume outpaced call activity by a ratio of 10-to-1 after 6,375 puts and 630 calls traded in OSG Friday. June 26 puts, which now sit 3.7 percent out-of-the-money, were the most actives. More than 3,000 traded, and since open interest is 2,068 and 95 percent of the flow has been at the offer, it looks like put buyers are driving the action, opening new positions. Similar activity surfaced in the at-the-money June 27 puts. Looks like short-term bearish trades, or perhaps some hedging action. June options expire in 21 days. No recent news in OSG to explain today's bearish flow on the shipper.

Bearish flow also surfaced in National Bank of Greece (NBG), Omnivision Technology (OVTI), and Enterprise Products Partners (EPD).

Index Trading
CBOE Volatility Index (.VIX) hit a morning low of 15.36, but has found some afternoon strength and closed at 15.97. Still, the volatility index is down 19 percent from the highs seen Monday morning. In the options market, VIX August 50 calls had noteworthy action. Some investors were paying 20 and 25 cents for the contract, according to a source near the CBOE VIX options trading pit. Volume in the contract surpassed 100,000. It's noteworthy, as these calls are very deep out-of-the-money. VIX futures for August are currently near 20 and it would take a substantial spike in volatility for the August 50 calls to expire in-the-money at expiration. Today's call buyers might be looking for a volatility spike in the summer and buying these deep OTM calls as a hedge.

ETF Action
US Natural Gas Fund (UNG) saw more options volume than usual. Shares of the fund, which tracks the commodity through futures contracts, closed up 38 cents to $11.48 after natural gas rose 15 cents to $4.51 per BTU. Meanwhile, in UNG options action, 66,000 calls and 23,000 puts traded on the ETF. June 12 calls, which are 4.6 percent out-of-the-money and expire in three weeks, are the most actives. 26,400 traded, as some investors might be taking positions in the contract on hopes higher natural gas prices will fuel a rally in shares of the ETF. Jun 11 calls, June 12 puts, July 10 calls, and July 12 calls had active trading as well.