Gold On The Move 06-18-2010

Cusick’s Corner
The trade so far today is uneventful, just whipping around in a tight range into the Midday. Gold is about the only thing that is moving today, GLD, and this time there is no domestic or foreign reason (but one of my more conspiracy driven cohorts pointed out, you never hear what the Chinese are doing in the Gold markets until it has already happened). This has been a quiet expiration so far but the After Hours could get a little busy in the last hour, especially if there is a pullback -- watch 1100 on the SPX and some zealous longs come in at the end of the day. See you After Hours.

The major averages have been trading in a narrow range and are modestly higher on a very slow news Friday. With no economic data or earnings to guide the action, the Dow Jones Industrial Average opened modestly higher and extended a three-day 240-point gain. Trading was quiet overseas. Crude oil recovered from early weakness and is up 42 cents to $77.21. Gold gained $14 to 41261.50 and is probing record highs. Meanwhile, the Dow has traded in a narrow 59-point range and is up 25 midday. The NASDAQ added 3.5. The CBOE Volatility Index (.VIX) slipped another 1.17 to 23.88. Trading is active due to the options expiration, with about 3.85 million calls and 3.4 million puts traded at 12:20 ET.

Bullish
Anadarko Petroleum (APC) is up 97 cents to $42.57, as oil drillers rally on higher oil prices and diminishing concerns about the impact of the Gulf spill on offshore drilling. APC, which was a partner in the rig that sank and caused the disaster, is now up 22.2 percent from the lows seen on June 9. In the options market, one player appears to be looking for additional upside and initiated a January 40 – 55 (1X2) call ratio spread at a $3.15 debit, 1800X. That is, they bought 1,800 Jan 40s at $10.15 per contract and sold 3,600 Jan 55s at $3.50. This spread is a bullish play, as the maximum pay-off is at $55 per share at the expiration. There is also substantial risk to the upside, because only half of the short January 55 calls are covered.

Cirrus Logic (CRUS) is seeing a second day of active trading. Shares rallied yesterday after Jim Cramer interviewed the chipmaker’s CEO and also made positive comments about the company. Shares are up another 83 cents to $17.83 and notched a new 52-week high after Captone analysts raised the price target on the stock to $23 per share. Meanwhile, in the options, volume is running 4X the average daily, with another 9,850 calls and 2,850 puts traded so far.

Bearish
A large block of puts traded in Oracle (ORCL) ahead of the software maker’s June 24 earnings release. Shares are flat at $23.07 and the focus is on the January puts at the $20 strike. More than 40,000 traded. The action includes a buyer of 35,700 contracts at 98 cents per share. It was tied to a large position in shares and therefore probably a volatility play ahead of the results. However, it might also be a closing trade because open interest in the contract is currently 67,685 and the biggest position in ORCL options.

IBM is down 74 cents to $130.74 and one of 16 Dow stocks moving lower midday Friday. In options trading, it appears that one investor is bracing for additional weakness in the computer maker and initiated a bearish three-way trade. This strategist apparently sold 1,600 October 145 calls at $1.30 and bought the October 125 – 115 put spread at $2.41. This spread, at a $1.11 net debit, offers a potential $8.89 pay-off (excluding commissions) if shares fall to $115 or less by the expiration. It might be to hedge a position in IBM shares.

Unusual Volume Movers
IShares Japan Fund (EWJ) options volume is running 4X the usual, with 35,000 contracts traded and put volume accounting for about 99 percent of the activity.

Continental Airlines (CAL) options activity is running 6X the usual, with 94,000 contracts traded and put volume representing 94 percent of the volume.
Amylin Pharmaceuticals (AMLN) options volume is running 4X the usual, with 26,000 traded and call volume representing 72 percent of the activity.

Unusual volume is also being seen in Walgreens (WAG), Covanta (CVA), and Adobe (ADBE).

Implied Volatility Movers
Transocean (RIG) implied volatility is easing, as shares rally on diminishing concerns about the impact of the Gulf spill on offshore drilling. Shares are up 8.7 percent to $53.72. Meanwhile, implied volatility has plummeted 17 percent to 62, which is the lowest levels so far in June and significantly below the 103 percent seen when the stock was falling to 52-week lows on June 9.