Wall Street's Wednesday Lunch Options
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July 13, 2011
Tuesday’s fearful lack of support sees bulls reverse course following a headline rescue from China and “BullnankeSpeak.” As of 11:05 ET the SP-500 (SPY) is up 1.15%, back above that closely-played 50SMA and confirming the mad money’s “Buy, Buy, Buy!” regularly scheduled program from an oversold condition.
A new trading day has brought about a more optimistic outlook and further confirmation the final hour of trade and key moving averages hold less predictive value than maybe in days past. In Wednesday’s first half, still accessible but muted global fiscal concerns from Ireland, Italy, the US and other countries to be quite certain, have been swept under the proverbial carpet in favor of strong but double-edged growth data out of China and some Fed Chief “Bull-nankeSpeak.”
Overnight, China reported a stronger-than-expected jump of 9.5% in the country’s Q2 GDP but down from the first quarter’s 9.7%. Analysts had forecasted a mostly matching year-over-year increase of 9.4%. Industrial production data also proved stronger-than-expected as June saw an increase of 15.1% compared to May’s 13.3% and consensus views forecasting a slight slowdown to 13.1%. Together, both reports support the possibility for a soft economic landing.
For their part, investors have been pleased enough to find a couple buoyant economic reports as to not worry about the potential ramifications on China’s ongoing rate hike program. Separately, before the House Financial Services Committee, Fed Chief Bernanke noted policymakers commitment to provide additional accommodative measures if justified by worsening economic circumstances.
At the same time however, Bernanke did express that officials are prepared to be nimble and more rigid in their monetary policy if the economy starts to make a turn for the better. To boot, an exit strategy is in place for the current accommodative program put in place at the beginning of the financial crisis.
In those sometimes intertwined markets of influence, the US Oil Fund (USO) is jumping higher by 2.35%. General improved market sentiment and a weekly inventory report which showed a much stiffer draw of 3.1M barrels versus forecasts of 1.5M have acted as support for bulls to re-test last week’s highs and USO's tight 50 and 200SMA technical confluence.
Silver (SLV) is staging a two month breakout from its loose lateral trading range and 50SMA resistance for the first time since its swift corrective move in early May. Intraday, SLV is up a very precious 5.25%, while fellow yellow metal gold (GLD) is up 1.10% and breaking out of its own base but to fresh all-time-highs.
Following flight-to-safety bids the past two days in the likes of the 20-Year (TLT) and US Dollar (UUP), that special species of bull has unsurprisingly pulled the plug on that conviction. Intraday, TLT and UUP are off -0.80% and -1.15% and near tests of their respective 50SMAs.
And improved sentiment is also showing its face in the VIX ($VIX). The market’s most notorious gauge of both fear and complacency in recent sessions is off -7.50% and down to 18.40% following Tuesday’s fearful bid and “stretched” bid to 20% and one some 17% above its 10SMA.
Finally and in those sometimes accurate heat-seeking option markets, yesterday saw massive and lopsided levels of calls change hands in mining goliath Freeport McMoran (FCX) on more than 1.1M total contracts. Shares are up 2.75% but lest you think those traders had a clue, the vast majority didn’t “handle” today’s move as presciently as the surface evidence suggests.
The bulk of the action in FCX's calls was tied to pros trying to game today’s ex-dividend date worth $0.25. In scouring open interest from yesterday to today, much of the swapping of heavily-traded verticals in an attempt to get away with an above market price buy-write if the Options Clearing Corp’s lottery process delivered some Lady Luck one’s way; didn’t exactly pan out.
Large open interest in the July 43 and 46 calls is virtually non-existent now, while more than 380,000 contracts traded. Some unassigned shorts in the 50s did get away with the buy-write as open interest of 7,500 still exists after the strike traded more than 273,000 contracts. That amounts to current risk adjusted profit of $150,000 thereabouts.
How that open profit was divvied up is unknown, unless you happen to be standing in the FCX crowd with a fellow market maker high-fiving over something other than being positioned directionally to handle today’s brand of bull.
Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.
