I have recently received some reader emails on the subject of the Financials, more specifically about the Banks, KBE. Big Banks continue to weigh on the sector but the Regionals, KRE, have been the leaders. This has me looking at names in this segment - like WBS, EWBC, and PNC. I point this out because I like to look at benchmarks, compare them to any outperforming indices or ETFs and then look up the best performing stocks within that segment. The data as of late has been a boost for Regionals but the EU still weighs on the big Banks. See you on the last trading day of 2011.
Stocks moved broadly higher on economic data and end-of-year position squaring Thursday. Data released before the opening bell on Wall Street showed Weekly Jobless Claims increasing by 15,000 to 381K in the period ended 12/24, which was 13,000 more than expected. However, Chicago PMI, a gauge of regional manufacturing activity, held steady at 62.5 in December. Economists were expecting a decline to 60.1. At the same time, November Pending Home Sales jumped 7.3 percent, compared to expectations for a modest .6 percent increase. No other economic stats are on the docket until ISM Index and Construction Spending next Tuesday and tomorrow is the last day for investors to square positions before yearend. Stock market averages have seen seesaw action heading into the last day of trading. The Dow Jones Industrial Average gained 136 points today and recovered most of the 140 points loss from the day before. The industrial average is now down just 7 points on the week. For 2011, the Dow is up about 700 points.
James River Coal (JRCC) shares added 12 cents to $6.41 and options on the Richmond, VA coal producer were actively traded Thursday. About 10,000 calls and 165 puts traded on the stock, which is 5X the daily average for JRCC. June $7 calls, which are 9.2 percent out-of-the-money and expire in approximately six months, were the most actives. 5,310 traded against just 12 contracts in open interest. Players were apparently paying $1.20 to $1.30 to open new positions in these calls. JRCC has had a rough year in 2011, losing about three quarters of its value since December 31. Today's June $7 call buyers might be hoping for a significant rebound in the stock during the first half of 2012.
Bullish trading was also seen in Hecla Mining (HL), Kinross Gold (KGC), and Computer Sciences (CSC).
Fortress Investment Group (FIG) lost a penny to $3.37 and options volume on the New York-based asset management firm was 2.5X the daily average, with 9,340 puts and only 100 calls traded on the stock today. The flow was heavily concentrated in January 3 puts. More than 9,000 traded. While some of the activity might be closing because open interest in the contract is 28,300, implied volatility in FIG options jumped 22 percent to 63. Rising implied volatility is often a sign of buying interest. If so, some investors might be bracing for short-term weakness in the stock. Jan 3 puts on Fortress are 11 percent out-of-the-money and expire in three weeks. The stock has not performed well in recent months and is down 45 percent since April.
Bearish trading was also seen in Blackstone (BX), ON Semiconductor (ONNN), and NRG Energy (NRG).
Trading is slow across the index market, but the PHLX Oil Service Index (.OSX) saw an uptick activity. OSX, which is a cash index that tracks the price action of Halliburton, Baker Hughes and other leading drillers, added 1.86 points to 216.13 after crude oil prices rose 31 cents to $99.67 per barrel. Meanwhile, OSX options volume was 7.5X the average daily. 2,040 calls and 200 puts traded in the product. Most of the flow was due to a block of 2,000 Feb 235 calls that traded at $3 when the market was $1.90 to $6. The position looks like a new one and possibly a call writing strategy. If so, the strategist is betting that OSX will stay below 235 (+8.7%) through the Feb expiration (49 days). If not, and the position is held through the expiration, the strategist will face assignment on the calls and be asked to pay the difference between the settlement value of the index and the strike of the calls (235).
Proshares UltraShort Gold Fund (GLL) saw more volume than usual. Shares, which are designed to move 200 percent the inverse to spot gold prices, gained 17 cents to $20.28 and are on five-day 8.8 percent run higher. However, GLL finished well off session highs of $20.83 after gold prices shifted direction Thursday morning. The yellow metal initially plummeted to $1524 an ounce early, but then battled back and was recently down $17.80 to $1546.30. The volatility in the metal stirred up a lot of activity in GLL. 3,570 calls and 320 puts traded in the product. Jan 17, 18, 19, 20 and 21 calls, which expire in three weeks, were the most actives, as short-term players were possibly entering positions in GLL after the big moves in the precious metal in recent days.
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