Stocks Lower as Investors Digest Earnings Reports

Stock market averages are lower, but have moved off the worst levels heading into the final hour of trading Friday. The news flow has been light. The only stat released today showed Wholesale Inventories down .2 percent for June, which was mostly in-line with expectations. On the earnings front, Priceline (PLCN) is moving up nearly 5 percent on the heels of the online travel company’s profit report. Monster Beverage (MNST), Assured Guaranty (AGO), and Rackspace (RAX) are among the names seeing post-earnings strength as well. Youkou (YOKU), Medivation (MDVN), and Allscripts (MDRX) moved lower. Gap Stores (GPS) is down on same store sales results, but Blackberry (BBRY) moved higher after Reuters said the company is exploring the possibility of going private. Elsewhere, trading was mixed across much of Asia, but European markets are mostly higher. Crude oil is up $2.50 to $106 and gold added $2.5 to $1312. On Wall Street, the Dow Jones Industrial Average was off 122 points midday, but has trimmed its loss to 60. The NASDAQ dropped 5.

Today’s Bullish Trading
Noble Energy (NE) is up 23 cents to $39.59 and options volume on the Swiss-based oil and gas driller is running 3X the daily average. 22,000 calls and 1,650 puts traded on the stock so far. The top trade is an 8,300-contract block of September 41 calls for 99 cents per contract when the market was 95 to 99 cents. More than 9,500 now traded against 2,363 in open interest. Aug 32, Sep 44, and Sep 40 calls are the next most active in the name. It’s not clear what is motivating the activity, as the stock is not much changed on relatively light volume Friday. The company reported earnings on July 17 and has seen choppy trading since that time. Today’s order flow seems to be reflecting expectations for a move higher in the weeks/months ahead.

Bullish trading was also seen in VALE, Alpha Natural Resources (ANR), and Dow Chemical (DOW).

Today’s Bearish Trading
Micron Technology (MU) is up 14 cents to $14.09 and August 14 calls on the chipmaker are today’s most actively traded equity options contract. More than 45,000 contracts traded. Open interest at that strike is more than 136,000 contracts and the second largest block of OI in Micron (behind the Jan2015 $15 calls). The contract is now 9 cents in-the-money and expiring in one week. It’s possible that some investors are covering or liquidating positions in the calls after a two-week rally in shares. If so, the flow is not necessarily, but seems to be expressing the view that MU will see limited upside next week.

Bearish trading was also seen in JC Penney (JCP), Darling (DAR), and American Movil (AMX).

Index Recap
CBOE Volatility Index (.VIX) edged up 0.68 to 13.41 after the S&P 500 dropped 5.36 points to 1,692.12 through late-Friday. Trading in the index market is very light. With less than an hour remaining in the trading week, about 393,000 calls and 469,000 puts traded on VIX, the S&P 500 Index (SPX) and other cash indexes, according to Trade Alert data. There’s not much volume and not much volatility either. In fact, the actual or historical volatility of the S&P 500, which is based on the closing prices over the past 30-days, has plummeted to only 6.5 percent. VIX tracks the expected or implied volatility of S&P 500 options and, at 13.16, is near the lower end of the 2013 range. However, it is also more than double the S&P 500 actual volatility, which is a somewhat uncommon occurrence and seems to be suggesting the options market is “pricing in” the possibility for an increase in market volatility in the weeks ahead.

Analyzing the ETF Market
SPDR Financial Fund (XLF) is off a nickel to $20.44 and options order flow on the ETF is a bit lopsided Friday, as 127,000 puts and 14,000 calls traded in XLF so far. September 20 puts, which are now 44 cents, or 2.2 percent, out-of-the-money and expiring in 6 weeks, are the most actives. 86,575 traded. October 20 puts are the second busiest options in XLF today. 31,750 have changed hands. Shares, which represent ownership in all of the financial-related names from the S&P 500, are up nearly 25 percent year-to-date and some investors are possibly buying Sept and Oct 20 puts on the ETF for fear shares will give back some of those gains in the weeks ahead.