Squeeze Ahead

Stock market averages finished with gains on a relatively slow day of trading Wednesday. Ford Motor (F) rallied 3.5 percent and seemed to help bolster investor sentiment after the automaker reported a 12.2 percent increase in August sales and also announced plans to boost production. Intel (INTC) advanced 2.6 percent and was the best gainer in the Dow, while also helping the NASDAQ, after updating sales expectations at a Citigroup conference. On the economic front, a report out this morning showed the nation’s Trade Balance widening to $39.1 billion in July, from $34.5 billion and more than the $38.2 billion that was expected. Attention turned to the Fed’s Beige Book this afternoon, which rehashed the same observations about moderate or modest economic growth. There was little reaction to the headlines. Elsewhere, crude oil was off $1.18 to $107.36 and gold lost $18 to $1394. But on Wall Street, the Dow was up 95 points midday and finished up 97. The NASDAQ added 36.4 points.
Today’s Bullish Trading

Verifone (PAY) might be a name worth watching Thursday. The company is due to report earnings after the closing bell and trading in the options on the San Jose, CA billing systems company was busy today ahead of the news. About 17,000 puts and 2,000 calls traded. The stock is up 50 cents to $20.25 late in the day and Jan 19 calls are the most actives. 6,730 traded against 1,068 in open interest. Sep 20, Sep 21 and Oct 20 calls on PAY are busy today as well. The stock sometimes sees large reactions to earnings reports. The average daily post-earnings move over the past eight quarters is 11 percent, including a 20.9 percent drop on June 6 after the company reported three months ago. Higher options activity today might reflect expectations for another big move after tomorrow.

Bullish trading was also seen in Mosaic (MOS), Opko Health (OPK), and Monster Worldwide (MWW).
Today’s Bearish Trading

Best Buy (BBY) draws an unusual spread trade today. Shares of the retailer are off 3 cents to $36.98 after reaching multi-year highs of $37.98 earlier in the day. On the options front, a hefty December 23 – 30 (2X1) put ratio spread was bought on BBY for 60 cents. In this advanced options strategy, the investor bought 5,000 Dec 30 puts on the stock for 88 cents and sold 10,000 Dec 23 puts at 14 cents each. The best payoff from the position happens if the stock falls to $23 through the December expiration, which is a decline of nearly 38 percent. BBY is up more than 200 percent year-to-date and a shareholder might have initiated the 1X2 put ratio spread as a type of hedging strategy to help protect recent gains in BBY.

Bearish trading was also seen in Chicago Bridge and Iron (CBI), AT&T (T), and NASDAQ OMX Group (NDAQ).
Index Recap

CBOE Volatility Index (.VIX) is off .61 and holding the 16 level, as the S&P 500 Index (.SPX) adds 13.70 points to 1,653.47. Overall volumes are light. 636,000 calls and 563,000 puts trading in the VIX pit, the SPX pit and in the other cash index products, which is only about 85 percent the recent daily average volume, according to Trade Alert data. The seven most active index options Wednesday are VIX contracts, being led by VIX Sep 17 calls, Sep 17 puts and Sep 20 calls. SPX Weekly 1675 calls, SPX Sep 1750 puts and, oddly enough, very deep out-of-the-money SPX Dec [2015] 200 puts are seeing interest as well.
Analyzing the ETF Market

iShares Japan Fund (EWJ) finished the day up 17 cents to $11.31 and options volume on the ETF was 7X the daily average. 112,000 puts and 43,000 calls traded on EWJ. One spread trade drove much of the put activity, as an investor sold 50,000 September 11 puts on the fund at 13 cents and bought 50,000 October 11 puts for 24 cents, according to a source on the exchange floor. The Sep – Oct 11 put spread, for 11 cents, is possibly a roll, or closing out September while opening a new hefty block of Oct 11 puts. Later in the day, several blocks of Sep 12 calls traded on EWJ at 2 cents per contract. More than 40,000 contracts changed hands on the day on the day against 200,182 in open interest. Some investors were possibly liquidating positions, as September options on EWJ are expiring in a little more than two weeks. At the end of the day, the selling of Sep 12 calls and opening in Oct 11 puts on the ETF seems to be reflecting a cautious or bearish short-term outlook for Japan’s equity markets.