Wednesday's Options Recap

Sentiment

Stocks are trading broadly higher late Wednesday. The stage was set for steady trading in the US after markets across Asia and Europe edged higher. Meanwhile, in the US, the day's economic data didn't hold any unpleasant surprises. A report released pre-market showed consumer prices increasing a bit more than expected last month. The Consumer Price Index [CPI] gained .4 percent in August, a bit more than the .3 percent economists had predicted. Stripping out food and energy, the core CPI rose .1 percent, which was in-line with estimates.

Data released later in the day showed industrial production up .8 percent and capacity utilization at 69.6 percent in August. Economists were looking for .6 percent and 69 percent.

The equity market didn't show much reaction to the numbers and, instead, seem to be moving higher with help from soothing words from Fed Chairman Ben Bernanke the day before. The head of the Fed said Tuesday that the economic recession is probably over.

Crude oil is up $1.38 to $72.31 and gold added $12.40 to $1018.70 an ounce. The Dow Jones Industrial Average is up 86 points heading into the final hour. Trading is active, as players prepare for the options expiration. Approximately 7.0 million puts and 11.7 million calls traded so far (a ratio of .61, compared to a 22-day average of .82.)

Bullish Flow

Nokia (NOK) is up 35 cents to $15.91 and it looks like at least one investor expects further gains before the weekend. Recent trades include a sweep of more than 10K Sep 16 calls, bought for 20 cents. Existing open interest is 957, suggesting opening buyer driving the order flow. Reuters reports this morning that NOK "is seeing large interest towards its new top-of-the-range model N900." Next earnings due out Oct 15, but September options expire at the end of this week.

Apple Computer (AAPL) is seeing heavy trading after CNBC commentator Jim Cramer made upbeat comments about AAPL on the latest episode of Mad Money. Shares are up $7.26 to $182.42 and touched a new 52 week high. An impressive 331K contracts had traded by midday. In a sign that retail is dominating the activity, there have been no big prints in Apple. The top trades of the day the AAPL Oct 135 - 145 - 155 - 160 condor, 1000X on AMEX at 11:03 — probably a closing trade now that Apple shares are flying well above the body of the spread.

Bearish Flow

Bearish flow continues in Poniard Pharmaceuticals (PARD). Shares are down 21 cents to $7.61 and another 7,195 puts traded (almost 10X the number of calls). Like yesterday, Dec 5 puts are leading the flow, with 3127 traded and 95 percent of the volume trading ask-side. Meanwhile, another 3,050 Mar 10 2.5 puts traded — 98 percent hitting ask-side. ISEE data (72 percent = 2136) is also consistent with opening put buyers.

Implied Volatility Movers

VIX below 20? One player might think so — they just bought 20K VIX Feb 20 puts for 50 cents. Looks like a new position. The CBOE Volatility Index is up .46 to 23.88.

Implied volatility is also higher in MEMC (WFR), Oracle (ORCL), and MGM. Meanwhile, implied volatility is lower in Wellcare Health (WCG), Poniard Pharmaceuticals, and Adobe (ADBE).

Comments

[vman650:]

I do not understand the market action and am completely befuddled.
Best buy reports terrible numbers but the nasdaq rises continually like a rocket ship. Very few electronics retailers exist and if BBY is not selling stuff who is ? Yes I know that the market is forward looking but Bernanke is saying no improvement for years in unemployment. I am hoping that the market is correct, but if it progress is not seen soon on main street the market may very well tank again. If it does, it may take a generation for confidence to be restored in our financial system. Markets almost never rise as quickly as they fall. The present day price action is something I have never seen before.

Sep 16 05:27 PM

[JD of OZ:]

vman 650,
My take: There are numerous signs that this bear market rally is reaching a peak. Today's action represents the very late comers throwing their money in just to get a piece of the action not knowing that they are buying the shares that the smart money desperately wants to sell.

You are correct to note that BBY is THE electronics retailer and if they aren't selling then discretionary purchases are surely in the tank. Smart money (ie: Goldman Sachs who surely will get the data before anyone else) knows that more and more data will confirm this and they will start selling like crazy. The poor late comers will be scorched in the process.

I'm not buying this rally. We are about to enter a crash for the ages.

Cheers!!


On Sep 16 05:27 PM vman650 wrote:

> I do not understand the market action and am completely befuddled.
>
> Best buy reports terrible numbers but the nasdaq rises continually
> like a rocket ship. Very few electronics retailers exist and if BBY
> is not selling stuff who is ? Yes I know that the market is forward
> looking but Bernanke is saying no improvement for years in unemployment.
> I am hoping that the market is correct, but if it progress is not
> seen soon on main street the market may very well tank again. If
> it does, it may take a generation for confidence to be restored in
> our financial system. Markets almost never rise as quickly as they
> fall. The present day price action is something I have never seen
> before.

Sep 16 08:13 PM

[brambilla:]

Apple shares closed up 4% today, peaking at a new 52-week high of $182.75. Why? Kind words from CNBC's Jim Cramer last night, and a Needham & Company analyst this morning, who jacked his price target to $235.

It's been a heck of a run for Apple, whose shares have more than doubled since January, shortly after Steve Jobs announced he was going on medical leave. Since then, the momentum behind the iPhone -- and speculation about Apple's next product, a tablet computer -- have driven shares skyward.

The stock is now within spitting distance of its all-time high. (Microsoft, meanwhile, trades at about one third of its own all-time high).

Sep 17 04:52 AM

[Predictor:]

NOK may hit $25 by Jan 2010. Check the link below to an article in India's Business Standard.

www.business-standard....

Sep 17 08:48 AM

[cyclingscholar:]

Can you comment on the relative premiums of puts and calls, especially on the SPY/DIA/QQQQs, that is, the indexes. Puts are overvalued it seems to me; which shows folks are still sceptical of this rally.

Sep 17 10:18 AM