There is just no selling pressure in this market. While we are hovering around at breakeven, S&Ps +2.0, the retail side is not over exuberant with bullishness. If you look at the Put/Call ratio, CBOE Composite at .787, this is telling me that there is not a ton of call buying. So from a contrarian perspective there is nothing that would flag too much bullishness. This is a positive for a market that has been parabolic. The Retail sector, XRT, continues to perform and the Consumer, XLY, continues to exhibit strength which is a huge catalyst for growth and the sentiment in the market. I expect a grind into the close on this expiration Friday; traders will be cleaning up loose ends into the long weekend. I will be watching the NASDAQ, weakness hit early but it has firmed up -- I want to see if the bulls will fight back in Tech, fight on "War Eagle!" (this one's for Mark).
Market action is mixed on expiration Friday. Economic news was in focus early after a report showed the Consumer Price Index up .2 percent in January, which was .1 percent less than expected. The List of Leading Indicators for January was released later and rose .4 percent in January, which was .1 percent less than economists had expected. The data seemed to have little market impact and investors are keeping a close eye on events overseas. While Japan's Nikkei jumped 1.6 percent overnight after Thursday's strong rally on Wall Street, stock market averages finished broadly higher across Europe as well. Germany's DAX helped pace the advance with a 1.4 percent gain amid hopes EU officials will approve a Greek bailout package. However, after a triple-digit rally pushed the Dow Jones Industrial Average to multi-year highs Thursday, overall market action has turned mixed through midday Friday. The Dow is up another 27 points, but the NASDAQ lost 11.4 points. CBOE Volatility Index (.VIX) is down 1.05 to 18.17. Trading is active due to the expiration, with 6 million calls and 4.2 million puts traded through 12:30pm ET. Today is the last day to trade February 2012 options contracts.
32,000 calls and 7,125 puts traded on EBAY today. Shares are up 23 cents to $34.74 and the top trades are part of a spread, in which the strategist apparently sold 8,000 April 34 calls on the stock at $1.95 per contract and bought 14,500 April 36 calls for $1.01. Looking at the open interest, it appears that the sale of April 34 calls might be a closing trade. At the same time, the block of April 36 calls appears to be a new position. So this call ratio spread is possibly a roll up on strikes. That is, after a 23 percent rally in shares since late-November, the strategist might be closing a position in in-the-money calls on EBAY to open a new larger position in the Apr 36s, which are out-of-the-money. If so, this position adjustment seems to reflect the view that the recent rally in EBAY can continue through the April expiration, which is in 63 days.
A lot of activity in the options market Friday is due to rolling ahead of the February expiration. An example is in Harman International (HAR). Shares of the Stamford, CT electrical equipment company are up 64 cents to $50.92 and in morning trading, 1000 Feb 50 calls were apparently sold on the stock at 90 cents to close a position ahead of the expiration. Meanwhile, a new bullish position in Mar 52.5 - 55 call spread was apparently bought for 90 cents, 1000X. In essence, the strategist was selling the Feb premium to buy a March call spread and maintain bullish exposure in the name for an additional four weeks.
A large block of puts trades on AT&T (T) today. Shares have added 3 cents to $30.05 and a 24,000-contract block of April 25 puts was bought on the phone company for 10 cents per contract. More than 31,000 contracts have now traded. Open interest is 8,320 and so the flow appears to be new position in these puts. The contract is deep out-of-the-money and so the action seems somewhat unusual. Shares have not traded south of $25 since August 2012. A large shareholder might have initiated the trade as a form of protection or insurance to hedge stock.
A large block of calls trades on the SPDR Financial ETF (XLF) Friday. Shares, which hold all of the financial-related names from the S&P 500, added 6 cents to $14.75. Quiet trading continues. Meanwhile, in early options, one investor sold a hefty block of 175,000 May 16 calls on XLF for 21 cents per contract. 200,000 were sold total and appears to be opening activity. If so, an investor might have sold the calls against shares as part of an overwrite strategy or the call write might be an outright view that XLF will not move beyond $16 through the May expiration, or a 8.5 percent gain during the next three months.
Baidu.com (BIDU) options volume is running 2X the (22-day) average, with 174,000 contracts traded and call activity accounting for 63 percent of the volume.
Gilead Sciences (GILD) options volume is 6X the daily average, with 107,000 contracts traded and call volume representing 51 percent of the activity.
SPDR Homebuilders Trust (XHB) options volume is running 3X the average daily, with 75,000 contracts traded and put volume representing 97 percent of the total volume.
Increasing options activity is also being seen in Devon Energy (DVN), Vivus Pharmaceuticals (VVUS), and Allstate (ALL).
Implied Volatility Mover
Levels of implied volatility in Frontier Communications (FTR) are coming down sharply after the Stamford, CT telecom reported earnings after the closing bell Thursday. The results were slightly better than expected and the company also announced plans to cut its dividend. Shares have added 16 cents to $4.63 and are on a three-day 14 percent winning run higher. Still, the stock had been battered throughout most of 2011 and is down about 50 percent from the levels seen in a year ago. Today's option trading in FTR is brisk, with 53,000 calls and 2,810 puts traded on the stock so far. March 4 calls, which had seen substantial volume heading into the report, are the most actives. 30,000 traded, as some investors may have been liquidating positions on the earnings news. Levels of implied volatility are falling sharply, down 40 percent to 49.
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