Nickel declined pretty steadily straight through, closing at its intraday low of $4.0574/lb., down 14¾ cents. Zinc had a series of sharp ups and downs, ending with a loss of over three-quarters of a cent, at $0.5102/lb. Aluminum sagged continuously for a second straight day, settling at its intraday low of $0.7064/lb., down 3½ cents, while lead also plunged to its intraday low of $0.4368/lb., down 4½ cents.

Copper slipped to its lowest level since July 2005 on, no surprise, global economic concerns.

For a change, inventories monitored by the LME were off, but not by much. Stockpiles fell 250 metric tons on Wednesday, to 292,775 tons.

That was insufficient to dispel any of the gloom, which is so heavy that Gijsbert Groenewegen, a fund manager at Gold Arrow Capital Management in New York, could predict that the copper may drop to $1 a pound. The metal “is not going to turn around anytime soon,” Groenewegen said.

Rob Kurzatkowski, futures analyst, optionsXpress (NYSE:OXPS), Chicago, added that, “Copper’s getting its due from the equity markets. (U.S.) manufacturing is at 26 year lows, industrial use is way down. Also, China has really been trying to stimulate their economy which probably indicates that first quarter of next year may be worse that previously thought.”

Also factoring in was an announcement of yet more cutbacks by Freeport McMoRan, the world’s largest publicly-owned producer. Freeport said it will suspend operations and lay off the bulk of its workers at a New Mexico mine. It also cut production estimates through 2010, slashed next year’s capex budget, and will curb other costs as it struggles to cope with plummeting prices.

The layoffs come in addition to about 800 jobs cut last month at its Western copper and molybdenum mines. Freeport also suspended its dividend, and didn’t rule out further cost-cutting steps if economic conditions don’t improve.

In other company news, Brazilian mining giant Vale said yesterday it is laying off 1,300 workers and will put 5,500 more on paid leave. Vale, the world’s largest iron ore producer, faces plunging demand from steel mills.

The layoffs affect 11% of Vale’s work force, and they come as company says it must slash iron ore output by 10% next year.

Source: Base Metals Still In The Slaughterhouse

Nickel declined from the pre-dawn hours until the noon hour, rallied into the afternoon but not enough to take it back to break-even as it closed at $4.5888/lb., down just under 7 cents. Zinc pushed slowly northward throughout the day, ending just off its intraday high at $0.5603/lb., up more than three-quarters of a cent. Aluminum peaked in the late pre-dawn hours, then dropped straight through the day, just coming off its intraday low at $0.7935/lb., down a third of a cent, while lead traded flat until the afternoon, during which it lost a penny and a quarter, to $0.5295/lb.

Copper’s modest uptrend failed to hold, as traders’ pessimism evidently reasserted itself and they sold into the one-week high established a day earlier.

Obviously, “The boost to sentiment by the Citigroup news proved to be short-lived,” said Wang Lei, an analyst at Haitong Futures Co. in Shanghai. “Fundamentals are still bearish for industrial metals as the global economy slows.”

The volatility in the stock market also factored in.

“As soon as the stock indices turned around, we saw the turnaround in the metals. The correlation between the two is getting tighter and tighter,” said Rob Kurzatkowski futures analyst with OptionsXpress (NASDAQ:OXPS) in Chicago. “Barring the unforeseen, it should closely trail with what the equity markets are doing.”

Also weighing on the market was a World Bank forecast for 2009 gross domestic product (GDP) growth in China, the world’s biggest consumer of industrial metals, cutting it to 7.5%, which would be the slowest pace since 1990.

Zinc managed to hold up after OZ Minerals Ltd., the world’s second-largest zinc mining company, said it will defer $318 million in project spending and cut output because of turmoil in debt and metal markets. The Melbourne-based company will also announced it will slash production at its largest zinc mine by 20,000 tons.

In major company news, BHP Billiton (NYSE:BHP) announced it is abandoning its attempt to take over rival Rio Tinto. Billiton had announced the bid during the commodities boom last November, but wrapped it up in the midst of sliding prices worldwide.

One measure of how drastically things have changed is the fact that at its peak, BHP’s the all-share offer valued Rio at about $193 billion. As of yesterday, by contrast, the bid was worth little more than a third of that, around $66 billion.

And in Antofagasta, the heart of Chile’s crucialcopper mining industry, mine workers demonstrated this week to demand government aid. Upwards of 2,500 jobs have been lost in the region as copper prices cratered.

Source: Base Metals Tread Water

Headline of the week:

“Lehman’s secret talks to sell 50% stake stall”

Ah, memo to Financial Times copydesk. If you are writing “secret” in a headline, it probably isn’t anymore.

LEAPing Lizards

Not too long ago, options were considered a crazy investment strategy for individual investors.

Back then, Wall Street’s brokerages and banks counseled their clients that options were complicated and risky, all while the very same brokerages and banks made billions trading stock options.

During those dark days of misinformation, even scholars such as Allen M. Poteshman and Vitaly Serbin dedicated time and effort to studying the bad things that happen to individuals who trade options.

In a Feb. 2003 Journal of Finance article, “Clearly Irrational Financial Market Behavior: Evidence from the Early Exercise of Exchange Traded Stock Options,” Poteshman and Serbin wrote: “Customers of discount brokers and customers of full-service brokers both engage in a significant number of irrational exercises while traders at large investment houses exhibit no irrational early exercise behavior.”

Of course, now, the average individual investor’s perception of options has changed dramatically for the positive. Much of that is due to people like my wife Lynn.

Lynn founded an options trading service in the late 1990s, way before most investors ever really considered options.

Not only was Lynn’s service eminently reputable, it was immediately profitable… as the founder of The Optionist, Lynn’s stature in the options community has only increased over the years.

That’s why, today, so many investors agree that with guidance from a proper expert, options can infuse sagging portfolios with a stiff shot of vim and vigor.

The vanguards of options trading, like Lynn, are also responsible for another interesting phenomenon – the formation of specialty options brokerages, also known as auto traders, of which the majority of customers are retail investors.

These are brokerages that receive trading alerts and automatically make trades for individual investors. These trades are for pre-set position sizes… such as for a set dollar amount or for a set number of options contracts on each trade.

Even cooler, one of these companies, optionsXpress is publicly traded on the NASDAQ under the symbol OXPS.

In a move that’s akin to looking in a mirror with a mirror behind you… I am convinced that a long-term option on optionsXpress could pay off nicely for you during the next 12 to 18 months.

The long-term options are known as LEAPS, which is an acronym for Long-Term Equity Anticipation Securities.

They are options contracts with expiration dates that are longer than one year. Structurally, LEAPS are no different than short-term options, but the later expiration dates offer the opportunity for long-term investors to gain exposure to prolonged price changes without needing to use a combination of shorter-term option contracts.

The premiums for LEAPS are higher than for standard options in the same stock because the increased expiration date gives the underlying asset more time to make a substantial move and for the investor to make a healthy profit.

Ultimately, LEAPS are an excellent way for a longer-term trader to gain exposure to a prolonged trend in a given security without having to roll several short-term contracts together.

The ability to buy a call or put option that expires one or two years in the future is alluring because you can profit on a long-term price movement for a small sum without the need to invest a large amount of capital that would be required to own the underlying asset (the stock) outright.

So, why do I want you to grab LEAPS on an options brokerage – an auto trader? It’s for the same reason anyone goes long. optionsXpress is a helluva business.

Led by CEO David Fisher and founder Ned Bennett, it has a brilliant management team.

Because of this, optionXpress sports a 40% profit margin, it has no debt so its return on equity of 42% is, well, out-freekin-rageous, and optionsXpress’ return on assets of 10% is sweet, too.

But, let’s get back to Lynn and the one or two other visionaries who led investors to options back in the1990s… and made options mainstream today.

You see, OXPS has been a prime beneficiary of all that increased retail investor activity. In fact, overall volumes for US listed options have grown at an impressive pace over the past 10 years – even outpacing the growth in equity volumes. According to the Options Clearing Corporation, total option trading volume grew at a 10-year compound annual growth rate of 25% through the end of 2007. Just as impressive is the recent trend that saw 38% average growth for 2006 and 2007.

That volume should continue to grow over the coming years as trading costs continue to decline and retail investors become more educated.

On top of that, OXPS holds some key competitive advantages with its technology platform, low overhead, focused customer service, and order execution capabilities. And, with no physical branch offices, a mainly variable cost structure, and low customer acquisition costs, OXPS has been able to deliver pretax margins that are well ahead of other brokers, while still growing its account base.

Nice, huh? It makes OXPS sound like a solid investment. And if straight ahead is the way you want to play this you’ll like the fact that optionsXpress’ current dividend yield sits at around 1.6%.