Cusick's Corner

My apologies for the late Midday commentary, it's just one of those days. With today's bump and the enthusiasm in this market, swing longs may be looking to take some partial profits. We have had a nice breakout after a decent consolidation which does give credence to further moves to challenge the upside, 1300 for the S&Ps. Also take a look at the Silver, SLV, this is an impressive move and could be a flag for the Semis, as we discussed yesterday. See you After Hours.

Market Recap

Stock market averages are holding gains, but drifting off session highs midday. The table was set for morning strength on Wall Street after data showed strong import numbers from trade partner China and after Dow component Alcoa (AA) posted revenues that topped analyst expectations. The aluminum maker also raised its industry outlook for the months ahead. Metals are rallying. Silver topped $30 and gold gained more than $25 an ounce. The domestic economic news included a report on Wholesale Inventories, which was up just .1 percent in November and .5 percent less-than-expected. The market showed little reaction to the report. Instead, stock market averages are higher on the strong Chinese import data and rallying commodities prices. The Dow is up 65-points, but has eased off session highs and is down 57 points from its best levels. The NASDAQ is up 21.5 points. CBOE Volatility Index (.VIX) made a stab at the 20 "psyche" level and is now down .61 to 20.46. Overall options volume is respectable today, with 5.4 million calls and 3.8 million puts changing hands by 12:30pm ET.

This Morning's Bullish Trading

SPDR Gold Trust (GLD) is rallying today amid strength in the metals market. GLD, which is an exchange-traded fund that owns gold bullion, is up $2.25 to $158.75 after the price of the precious metal increased by $25 to $1633.1 an ounce. The top options trades in GLD today are part of an advanced options strategy known as a call butterfly spread. In this position, the strategist sold 20,000 March 167 calls on GLD at $2.70 per contract, bought 10,000 March 160 calls for $5.15 and bought 10,000 March 180 calls at 88 cents. In other words, a March 160 – 167 – 180 call butterfly spread was bought for a 63-cent net debit. This spread is bullish, as it offers a max payout if GLD moves to $167 per share, or 5.2 percent, through the March 2012 expiration. (Use the Analyze This Trade link to see the potential risks and rewards of call butterfly spreads.)

Cirrus Logic (CRUS) is rallying today and options volume on the stock is 11X the daily average after the chipmaker raised its earnings outlook. The stock is up $2.28 to $19.25. 16,000 calls and 3,700 puts traded in the name so far. The biggest trades were part of a spread, in which the investor sold 490 January 17.5 calls on Cirrus at $2.09 per contract and bought 490 February 21 calls for 74 cents per contract. The spread, for a $1.35 net credit, has traded multiple times and appears to be rolling activity. The investor might have correctly anticipated the rally in the stock. He or she is now closing out a position in the in-the-money January calls, but looking for the rally to continue and opening a new position in February out-of-the-money call options.

This Morning's Bearish Trading

A massive options trade surfaced in Applied Materials (AMAT) Tuesday. Shares of the semiconductor capital equipment maker are up 30 cents to $11.64 and have now rallied 9.5 percent over the past five days. Morning options trades on the stock included 72,500 July 12 calls sold at 75 cents per contract. This new position was tied to 3.33 million AMAT shares (bought for $11.62 per share) and is not necessarily a bearish bet, but seems to reflect expectations that shares will hold below $12 (+3.1%) through the July 2012 expiration and the call options will expire worthless.

Tiffany (TIF) tumbles $7.05 to $59.89 after the retailer lowered is 2012 earnings forecast. The stock is under pressure and options volume in TIF is running 10.5X the average daily. 22,000 calls and 25,000 puts traded in the name so far. The top trades of the day were part of a strangle strategy, in which the investor sold 2,000 January 2013 60 calls on the stock at $8.30 and sold 2,000 January 2013 75 calls at $3.10. The position is an opening play and not really a bearish position, but seems to be a bet that the stock will hold between $60 and $75 through 2012 and into the Jan 2013 expiration.

Implied Volatility Mover

Implied volatility in Goodyear Tire (GT) options is moving higher after the company warned that nice weather across parts of the country this winter is hurting tire sales. The stock sank midday after the comments were made at an industry conference and are down $1.46 to $13.82. Options volume on the stock is running 6.5X the daily average. 9,700 calls and 21,000 puts traded in Goodyear so far. The big move in the underlying and the high options volume have conspired to lift implied volatility in GT option up 28 percent to 52.

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