Standard & Poor’s has done what they said they were going to do — downgrade the US and Government home lending agencies. After looking at the EU’s efforts that will hold up Spain and Italy, it is hard to imagine that with the Fed meeting this week and the fact that our politicians now see their butts on the line, that they will not come to the table to quell the fear that is in the market. This may be the buying opportunity that my kids or those who are 20 years away from retirement may not see for a while, so how can anyone play this way oversold move? Bulls may want to consider selling puts in names that they would love to own in their long-term portfolio, I heavily stress the concept of underlyings they want to actually own. Short-term bounce bulls could buy out-of-the-money call butterflies; use August options if you are anticipating a bounce into expiration or September options if you want time. Cooler heads will prevail. See you Midday.
Global equity markets are back under pressure after Standard & Poor’s downgraded the US triple-A credit rating late-Friday. In their first chance to react to the downgrade, markets traded lower across Asia and Europe before the opening bell on Wall Street Monday. Then, the Dow Jones Industrial Average tumbled at the open on concerns about the potential longer-term implications for the US and the economy from the downgrade. The ratings cut has completely overshadowed any other news of the day. Crude oil is also under pressure and has given up another $3.59 to $83.29 per barrel. However, gold has surged to record highs and was recently up $61.8 to $1712 an ounce. Meanwhile, the Dow Jones Industrial Average is down 322 points and the tech-heavy NASDAQ lost 96.5. CBOE Volatility Index (.VIX) hit a morning high of 40.96 and was recently up 6.78 to 38.78. Trading in the options market remains very active, with 7.11 million calls and 9.9 million puts traded so far.
Market Vectors Junior Gold Miners Fund (GDXJ) is up 81 cents to $33.54 amid relative strength in the gold mining sector after yellow metal surged to new record highs. Gold gained $61.8 to $1712 an ounce after nervous investors flocked to the metals market Monday. Silver jumped $1.19 to $39.40. Meanwhile, options action in GDXJ is brisk today. 19,000 calls and 4,540 puts traded in the ETF so far. September 38 calls, which are 13.3 percent out-of-the-money and expiring in 39 days, are the most actives. 7,400 traded. Aug 29, Aug 34 and Sep 30 calls are seeing brisk trading as well.
Research In Motion (RIMM) is falling to new 52-week lows today amid active trading in the options on the Blackberry-maker. 111,000 puts and 29,000 puts traded in the name so far. The top trades are part of a spread, in which the investor sold more than 36,000 January 24 puts at $4.825 per contract and bought more than 49,000 January 21puts at $3.25. Shares are down $1.49 to $21.90 and the spread is probably a roll – or closing out a winning position in in-the-money RIMM Jan 24 puts to buy a new larger position in out-of-the-money Jan 21 puts. A shareholder might have initiated the trade to adjust a hedge.
Implied Volatility Mover
CBOE Volatility Index (.VIX) rallied early to seize the 40 handle for the first time since May of 2010. VIX surged at the open after the S&P 500 Index (.SPX) faltered on news that Standard & Poor’s had downgraded US debt. The S&P, which lost 7.1 percent the week before, is down another 44.94 to 1,154.44. Meanwhile, VIX, which tracks the expected volatility priced into SPX options, surged to 40.96. The volatility index is now up 6.88 to 38.88 amid high volume in the VIX options pit. 286,000 calls and 106,000 puts traded in the product so far. Aug 40 calls, which expire in just 8 days, are the most actives. 42,180 traded.