NKE- “Swoosh” went the sound of short volatility this afternoon as option traders took advantage of a momentary blip higher in implied volatility of athletic shoe giant Nike. Shares pulled back 2.5% to $65.10 on no apparent news catalyst today as implied volatility ticked in at 26% - slightly above the 22.8% historic reading. An increase in option trading volume to 8 times the normal level showed traders keen to write the January 65 straddle for a combined premium of $12.10 – fully 18% of the current share price – exceeding existing open interest at the January line. The short straddle strategy is a popular one among traders anticipating minimal share price movement within a given timeline – the trader in this case wagers that Nike shares will remain at current levels heading into the New Year, leaving both positions unexercised.

BJ- This morning’s better-than-expected April sales figures from the likes of Wal-Mart and Costco affirmed the notion that cash-strapped American shoppers are on the hunt for bargains. While the news was good for shares in some big-box retailers, the gains weren’t wholesale. BJ’s Wholesale Club, the East Coast discount and remainders chain, is an instructive case in point. With shares down 2% to $38.15, option volume soared to nearly 9 times the normal level as traders took a defensive stance by positioning in June 40 puts. These puts, which convey the right to sell BJ’s Wholesale Club shares for $40 next month, are nominally in-the-money, but the $3.45 premium requires another $1.60 drop from current levels just to break even. Consider the volatility setup, where the 44% implied volatility reading indicates more than 25% more price risk to the company’s shares than have been proven historically.

FCX- Freeport McMoRan Copper - Shares in the world’s largest publicly traded copper company rebounded 3% to $117.85 after declines earlier in the week on labor issues and concerns of a slowdown in Chinese demand owing to prohibitively high copper prices. The 10,000 lot position in the January contract that we observed earlier today appears to have involved the sale of 110 puts for $15.43 and the purchase of 130 calls for $13.60. This suggests a short collar strategy employed by a trader with a short position in the underlying stock who wants to protect the position against an unexpected move higher. The purchase of the out-of-the-money call is funded by the sale of the out-of-the-money put – and in this case the trader even pockets a $1.83 credit on the transaction. Shares of Freeport McMoRan have risen 64.5% over the past year, trading as low as $70.94 and as high as $118.65 during that time.

IVN- Meanwhile, shares in Ivanhoe Mines, which is active in copper, gold and coal mining in Asia, recovered 1.4% of their value to read $9.47 this afternoon, fresh off yesterday’s declines on the announcement of a $7 million investment to boost its share of Australian copper explorer Exco Resources. The 8-fold increase in option trading volume we observed today appeared in January 15 calls, these more than $5 out-of-the-money, which traded to the middle of the market for $1.05. It seems well within the realm of possibility that an option trader decided to sell those 25,000 calls against an underlying share position, taking advantage of a 23% increase in the premium attached to that strike on back of the share price movement, and well aware that Ivanhoe shares have tested the $15 level on just two occasions in the past 52 weeks before falling precipitously again. Ivanhoe Mines traded past the $17 level in July 2007 and again in November – the setup for a similar rally was observed in late February, but Ivanhoe’s share stalled at $13 and took another nose lower. The trader in this case may be betting that a year-end rally in Ivanhoe, like a carnival hi-striker, will fall short of the January strike price, allowing him or her to pocket the premium risk-free – or, if exercised, hand over the underlying shares at a generous premium to current levels.

CSCO- Cisco - Shares in the network hardware maker extended yesterday’s post-earnings doldrums with a flat reading at $25.78 this afternoon. But while shares seemed to respond to a muted forecast for sales over the next two quarters, some option traders took the contrarian tack this morning by buying heavily into June 29 calls. The 11,000-lots traded here represented some 16% of the total morning volume in Cisco, which continues to rank among the most actively traded on our platform. These contracts, which cost a meager 15 cents apiece, look like a bold bid on a return to price levels not observed in Cisco since late December. Elsewhere it appears that a 5,000-lot straddle position may have been deployed at the July 25 line, but we have no information on the directionality of the trade.

CROX- – Crocs – Is this a sucker’s reprieve for the fad shoe maker, or signs of renewed life? Shares gained 15% to $11.42 on higher-than-expected profit guidance. But while the plasticized shoes continue to attract wearers in the form of kids, nurses, and casual comfort-seekers, its share price remains wedged barely $2 above the 52-week-low, having traded as high as $75.21 over the past year. We wonder whether Crocs is vulnerable to the one-two punch of fickle fashion tastes AND higher production costs in the form of petroleum by-products. Some option traders may be wondering the same thing – while call volume outflanks that of puts by more than 3 to 1 this morning, the only real one-sided buying action occurs at the in-the-money May $10 strike. Traders have readily taken both sides of the trade at call strikes 11, 12 and 13 in the front-month contract.

JAH- Jarden Corp – Option traders have turned volatility sellers in this niche consumer products maker. Shares in the company, whose array of products ranges from coffeemakers and animal grooming products to snowboards and camping gear, declined more than 10% after posting better-than-expected quarterly profits, but net sales fell short of analyst consensus. In a statement, the company’s CEO said that the current recessionary environment was having “a negative impact” on consumer confidence and retail sales. With shares at $21.05 – within a buck and change of the 52-week low – implied volatility at 53.4% continues to show a 25% elevation above the historic reading, which hints strongly that option traders feel the full impact of the earnings report hasn’t been priced into the stock. This kind of discrepancy tends to pad premiums, and it looks like the 10-fold increase in option volume may be due to traders selling that fortified premium in the October contract at the 20 put line (for $2.30) and the 25 call line (for $1.20). Jarden shares have been rangebound between those two strike prices since late-February, and sellers of those contracts expect them to remain so heading into the fall.

ENER- Energy Conversion Devices - Options volume in this Nasdaq-listed maker of thin-film solar laminates that convert sunlight to energy surged to 24 times the normal level this afternoon. Shares in the company, whose products are marketed under the Uni-Solar brand name, soared more than 39% to a new 52-week high of $48.52 after its Q3 profits soundly beat street expectations and delivered in-line guidance for Q4. With the equivalent of more than three-quarters of its open interest in play, trading 3 times as often to calls as to puts, traders are playing the short-term on Energy Conversion Devices, with fresh two-way traffic in calls at strikes of 45 and 50.

PSUN- Pacific Sunwear of California – Shares in the surf-themed teen apparel label known as “PacSun” reversed gains to trade .24% lower at $12.34 after reporting a 4% rise in same-store sales for the month of April, lower than analysts had anticipated, as a rise in spring clothing sales was cancelled out by lower accessories and footwear sales. Option traders sent volume to 7 times the normal level, with more than half today’s volume concentrated in June 12.50 calls, which traded 11,000 times at around $1, in excess of open interest.

Well, we’re getting our $125 oil pre-market.

It’s funny how we’re getting it as the Wall Street Journal runs a cover of good old fashioned yellow journalism, with Karl Rove-style attacks on Hugo Chavez as they headline: "A cache of controversial computer files closely tying Venezuela’s President Hugo Chávez to communist rebels seeking to topple Colombia’s government appear to be authentic, U.S. intelligence officials say."  Well, when have US Intelligence officials ever steered us wrong before?  This is, by the way, something that has been going on since March, it’s only news today as they need a reason to take oil over $125 but this may be the Journal’s last chance to wave this flag as Interpol (at Columbia’s request) will release an independent analysis next week.

Mr. Chávez has repeatedly said the files were faked by Colombia. "We don’t recognize the validity of any of these documents," Bernardo Álvarez, Venezuela’s ambassador to the U.S., said in a Wednesday interview. "They are false, and an attempt to discredit the Venezuelan government."  FARC itself has suggested the files are fake. A FARC statement published on the Web site of Venezuela’s Information Ministry ridiculed Colombia’s claims about the computer files, saying computers couldn’t have survived the Colombian army attack "even if they had been bullet-proof."

Perhaps the documents are true, perhaps they are not, but are we going to be marched headlong into another war (even if it’s only a trade war, with sanctions) rather than sit down and try to work out our differences with Chavez, who has been a Bush attack target since he took office (kind of like Saddam)?  Either way, any escalation of hostility with Venezuela will be a jackpot for traders who bought $150 July oil options yesterday and death for the US and perhaps global economy.  I know we’re all trained to go blindly nationalistic at the first mention of terrorists but there are tremendous costs to our actions and the possibility that the administration may be "wagging the dog" to distract the public is very scary at this point.

Note the WSJ headling is very definitive: "Chavez Aided Columbia Rebels, Captured Computer Files Show."  This is very much like the "proof" they had that Saddam had WMD’s but it’s been a whole 5 years since then so I guess we’ve all forgotten how well that turned out.

Of course Chavez is not the administration’s only target as the President attempts to boost his approval rating back over 30 as Iran has been in his sights for months and we’re also accusing Syria of building a nuclear reactor, a charge that Syria claims it utterly without merit as well. "Syria again rejects the US allegations and reaffirms that it has nothing to hide concerning its legitimate national defences. Syria wants to see peace in the region, unlike the current US administration which has been behind all its wars and crises."

Then there’s our pals in North Korea (who we are tying in with Syria now) and, if that doesn’t work, we’re back in the fray in Beirut, where the US-backed government there is under siege by Shiite opposition forces who somehow got the impression that the US is hostile to Shiites (perhaps it is the 300,000+ Shiites (over 1/2 civilian casualties) who have been slaughtered under US occupation in Iraq?).

Imagine living in Lebanon, with US armed forces marching in the streets supporting a US-backed government you didn’t elect and every month you see these numbers of Iraqi civilian casualties…   Kind of makes you wonder if perhaps Bush is wrong and our policies may be recruiting more future terrorists than we’re killing.

So aside from $125 oil, it’s small wonder the global markets are having a rough morning as international investors tend to pay more attention to politics than US investors, few of whom could point to Lebanon on a globe (or Syria or Myanmar or Columbia for that matter).  I have said we want to be well-covered into the weekend but with all this going on I think we want to pick up some gold as well!

The Hang Seng dropped 386 additional points this morning and the Nikkei fell 287 points (2%), led down by TM, who reported after their close yesterday (but ahead of our open so we ended up setting the price) as well as other auto makers on outlook that was so bad even Bridgestone (tires) dropped 6%."The market was feeling the impact of Toyota’s reports today, and investors were turning cautious, taking a wait-and-see stance ahead of more corporate results next week," said Tsuyoshi Segawa, an equity strategist at Shinko Securities in Tokyo.

As I predicted yesterday, the rumors of China’s intervention in the markets were false and the Shanghai Composite gave up 75% of yesterday’s gains, led down by banking shares all spooked by AIG’s surprisingly poor results.  Note that AIG’s issue is not just the write-downs, the massive write-downs are actually masking a really rotten quarter in the insurance business.

Both China and the EU are struggling with massive inflation while our government continues a policy of denial that is seen as a joke by the rest of the world and is back to crushing the dollar.  The IMF has taken the first G7 move to punish the US for doing absolutely nothing since the meeting last month to strengthen the dollar and is urging linked currencies to take independent action: "For emerging economies with currencies closely linked to the dollar that are fighting overheating concerns, macroeconomic policies need to be tightened in response to generalized inflation pressures," said John Lipsky, the IMF’s deputy managing director said in New York yesterday. For China, that meant moving to a flexible exchange rate, he said.

Europe is trading down about 1.5% ahead of our open, also led down by financials on the AIG news and we got a better-than-expected trade report this morning, which is bad new for countries who export to us as it was led by a drop in consumption.  US exports, in fact, fell 1.7% in March, dropping by $3Bn but they were outpaced by a 2.9% decrease in imports ($6Bn) that was the biggest drop since December 2001.  The bill for March crude imports jumped to $25.03Bn, from $24.8Bn in February (up 1%) but the price of crude was up $5.09 to $89.95 (6%) and our import barrel count for the month dropped by 8M barrels (3%) to 278M.

The world is feeling our pain as every extra dollar we paid for oil came out of what we used to pay to other countires for goods and services.  As I’ve been saying for quite some time, there is not enough money in the world to support $120+ oil AND the rest of the economy without MASSIVE inflation.  We’re not there yet but something is going to give, and soon!

I predicted a 200-point drop yesterday and if we hold that I may have the attitude that "what doesn’t kill us makes us stronger" but there’s it’s going to be pretty hard for me to get positive, even if we do stage some kind of rally if oil doesn’t break down and that is looking pretty unlikely.

Sorry, try to have a nice weekend!

That didn’t last long — I think we’re still getting email alerts for these articles. So, for now, after this note, let’s return to the backup site for more reading. Thanks! - Ilene

We all know about this already, but here’s Barry’s Ritholtz’s comment on the oil forecast.

WTF Headline of the Day? GS Says Oil ‘Likely’ to Reach $150-$200

Excerpt: "Today’s WTF headline isn’t a criticism of the financial media so much as a disturbing forecast:

Goldman’s Murti Says Oil `Likely’ to Reach $150-$200
Crude oil may rise to between $150 and $200 a barrel within two years as growth in supply fails to keep pace with increased demand from developing nations, Goldman Sachs Group Inc. analysts led by Arjun N. Murti said in a report.

New York-based Murti first wrote of a "super spike” in March 2005, when he said oil prices could range between $50 and $105 a barrel through 2009. The price of crude traded in New York averaged $56.71 in 2005, $66.23 in 2006 and $72.36 in 2007. Oil rose to an intraday record $120.93 today on speculation demand will rise during the peak U.S. summer driving season.

Before you blow the guy off as an energy extremist, his $105 target 3 years ago was widely derided ("another Henry Blodget wannabe")…."

And another excerpt from Paul Kedrosky’s article on the Infectious Greed blog:

The Oil Bubble, Self-Organized Criticality, etc.

"My earlier post about the possible oil bubble seems to have touched a nerve, so here is more. The good people at Factset have out a fascinating new report on the same subject — how energy markets are becoming awfully bubblish — and it’s worth a read in its entirety.

Here is one quick figure from the report showing how profits are growing so quickly that oil companies can’t keep up by raising prices. It creates an interesting box for energy companies and is one sign of a crack in the market."

"To be clear, I see no reason why oil prices tumble materially tomorrow. Matter of fact, I’m usually two years too early on these calls…"

Another perspective on GS’s call on oil prices, courtesy of Trader Mark.

Goldman Sachs: Gasoline Not Driving Oil Price - Oil Going to $150-$200

"Normally, I don’t care for predictions but considering this was the fellow who in 2005 said their could be a "super spike" in crude, let’s see what he has to say (I am on record as saying a "World of Shortages" theme combined with Western governments flooding the world with fiat paper can only combine to ultimately create higher prices). These are the first people (along with Cramer - have to give him kudos) who finally are realizing that the world does not revolve around the United States of Subprime; a position I’ve been advocating for a long while. The quicker we move away from our country-centric views, the better…"

For more, check out Trader Mark’s Fund My Mutual Fund.