A push through the 50 day moving average at 1080 and now a clearance of the 1100 level it appears that the S&P 500 index wants to place an assault on the 200 DMA at 1115 level. With the catalyst of the Potash proposed takeover providing a reminder that big moves can come at anytime, and option expiration on tap, we may have enough fuel to ramp right up to the 1130 level by the end of the week.
Volume in August expiration, which are a de-facto weekly options at this point, is starting to heat up especially in the Spyder Trust (NYSEARCA:SPY) as the $110 line has now traded 60,000 calls and 45,000 puts which represents nearly two-thirds of the existing open interest. The strike of peak open interest is the $112 call with over 175,000 contracts still open and if that line gets crossed then those short call premium will be forced to defend the positions (ie buy futures to hedge or cover) generating additional upside pressure.
The bond market has really been a house of pain for many this week as calls for a top or rise in rates have not only been premature but way off base. Option activity in the usually sleepy bond related ETFs such as Barclay’s iShares (NYSEARCA:TLT) and double inverse Proshares Ultrashort (NYSEARCA:TBT) have exploded over the past two sessions averaging 4x their daily volume. Today it looks like people pressing some bets that interest ratesmust turn higher at some point. Even after yesterday’s monster move which dropped yield on the 10-year down below 2.5% at one point, and shares of TBT, which move in the inverse of bond prices, down some 3.5% to a new 52-week low, there is very active call volume today—calls will increase in value as yields rise. The volume leader is the Sep. $33 call which has traded over 21,000 contracts, mostly in sub 500 contact lots and the flow being two sided with 54% occurring at the ask. A more bullish, bet on rates rising occurred March as the $40/$46 call spread traded 5,000x in an opening purchase.
Omnivision (NASDAQ:OVTI) Technology shares are off 6.2% to $20.90 and option volume is 3x the daily average. Volume leaders are the Sep $21 & $24 calls which have each traded 2,000 contracts,(largest block was 1,800 lot) in looks like a purchase of the spread. But prior open interest is sufficient to cover and this could closing a bear spread initiated on 8/12 when stock was trading $22.40. A report from research firm FlyOnTheWall mentioned that OVTI could bee losing some Apple (OTC:APPL) based business to Sony (NYSE:SNE). OVTI reports earnings 8/26.And for those that find today’s action too much to handle but need to look busy there is no shortage of dividend plays. Some names going ex-dive tomorrow seeing huge volume of ITM calls include, HSBC,Teekay Shipping (NYSE:TNK) and Maxim Integrated (NASDAQ:MXIM). Again, a dividend play typically involves buying an ITM call spread, excercising the lower strike in order to qualify for the pay out, and hoping the that the higher strike sold short is not assigned. Typically less than 1% of the ITM options are allowed to “skate free” so between transaction and carrying costs, which in this case is only a few days, these dividends are usually more busy work than anything else.
Disclosure: Long Spy