Commentary by Joe Cusick – October 3, 2012
|While the trade did not shift from the action at the midday, the Mideast is potentially heating up with reports that Turkey fired on Syria in response to an earlier shelling on a small boarder town. This could be nothing, the Crude markets are not moving on this initial report, but remember that Turkey is a NATO nation and this could have larger implications if this situation escalates, plus this could spice up the debates this evening. Right now the major indices are in a tight consolidation and at this stage assets that are driven by Consuming, like XLY, XLP, and Commodities/Currencies, DCB/FXE/AD, have turned which is a flag for some potentially negative action. Enjoy tonight’s debate!||
Stock market averages shook off morning weakness and finished with modest gains Wednesday. The news flow remained light and some of the early focus was on economic data. A report released this morning from ADP showed the private sector adding 162K jobs in September, which was better than the 133K that was expected. A bit later, ISM Services Index, a gauge of economic activity outside of manufacturing, printed at 55.1 from September – up from 53.7 in August and better than the 53 that was expected. Trading was mixed across the Eurozone and the euro slipped back to 1.291 against the dollar. Crude oil got some attention after plummeting nearly $4 to $87.95 per barrel on the heels of weekly inventory data, but gold gained $5 to $1780.5 an ounce. On Wall Street, the Dow Jones Industrial Average was up modest 35 points midday and trading was choppy in the second half of the session. At the closing bell, the Dow was up 13 points and weighed down by a 13 percent plunge in Hewlett Packard (HPQ) shares – see today’s Bearish Flow. The NASDAQ gained 15.2 points.
|Today’s Bullish Trading
Kohl’s (KSS) saw a second day of active trading. 4,100 calls and 1,600 puts traded on the stock Tuesday. Shares jumped $1.30 to $52.24 today and the action continued. About 19,000 calls and 5,900 puts traded on the retailer, which is 8.5X the daily average for Kohl’s. October 52.5 calls on KSS are now 26 cents out-of-the-money and expiring in 16 days. 9,520 contracts changed hands. October and November 55 calls were the next most actives. It’s not clear what is motivating the increased interest in Kohl’s options this week, as there have been no company headlines. Some investors might be anticipating good news when the company, along with a host of other retailers, releases September monthly same store sales results Thursday morning.
Bullish trading was also seen in Ford Motor (F), Acme Packet (APKT), and Ocwen Financial (OCN).
|Today’s Bearish Trading
Hewlett Packard (HPQ) dove $2.22 to $14.91 and to its lowest levels since 2002 Wednesday. The stock came under fire midday and closed near session lows after the computer-maker provided guidance at its 2012 Analyst Day. The company’s CEO said she expects revenues to track GDP growth through 2016. Investors seemed displeased with the news, as the stock fell on heavy volume of 140 million shares. Options volume jumped to 8X the daily average. 234,000 puts and 172,000 calls traded on HP today. November 17 and October 16 puts were the most actives in the name.
Bearish trading was also seen in HCA, CBRE Group (CBG), and Live Nation (LYV).
Overall options volumes in the index remain light and volatility stayed at low levels. CBOE Volatility Index (.VIX) edged down .28 to 15.42 after the S&P 500 Index (.SPX) added 5.24 points to 1450.99. Volume in VIX, the S&P 500 Index and other cash indexes was about 482,000 calls and 548,000 puts, which is well off the recent average daily volume of 1.4 million contracts, according to Trade Alert data. There’s not much hedging activity being seen in the options market so far in October; which is interesting because it is one of the more historically volatile months of the year for the equity market. Key monthly jobs data Friday might shake things up before the weekend.
Analyzing the ETF Market
SPDR Gold Trust (GLD) ticks 31 cents higher to $172.41 after the yellow metal moved up $5 to $1780.5 an ounce. The largest options trades on GLD today were part of a spread, in which the investor apparently bought 10,700 December 170 calls on the ETF for $6.50 and sold 10,700 March 190 calls at $2.91. The December 170 – March 190 call spread, for $3.59, is possibly a position adjustment because open interest is sufficient to cover in both contracts. If opening, it’s a bullish play on the metal and a view that shares will continue to move higher through the December expiration, but GLD will not rally beyond $190 through the March 2013 expiration. The Gold Fund is an exchange-traded product that represents ownership in the actual physical commodity – which is stored in bank vaults.