Traders Bias Tested Into the Close

Market action has turned mixed in afternoon trading Tuesday.  After moving modestly lower at the open, market averages were higher midday on the heels of an in-line report on Consumer Confidence, which was to 79.7 for September, from 81.8 the month before. Treasury bonds ticked higher and the yield on the ten-year is down to 2.65 percent, from 2.71 percent yesterday. In other markets crude oil edged down 16 cents to $103.43 and gold lost $2 to $13.25. On the earnings front, Lennar (LEN) and KB Homes (KBH) are up and leading the homebuilding stocks higher, but Carnival Cruise (CCL) and RedHat (RHT) are seeing post-earnings weakness. The Dow Jones Industrial Average, meanwhile, was up 20 points midday and is now down 16. With less than an hour to trade, the NASDAQ is up 14.

Today’s Bullish Trading

JetBlue Airlines (JBLU) is up 10 cents to $6.79 in active trading of 6.5 million shares and attempting to gain additional altitude after already rallying 9 percent in the previous two weeks. Some players in the options market seem to be getting onboard JetBlue today, as about 10,000 calls and only 90 puts traded on the stock so far. October 7 calls are seeing the bulk of the volume. The top trade is a 5,000 contract block for 15 cents per contract this morning when the market was 10 to 15 cents. Total volume at that strike is 7,700 contracts against 1,355 in open interest. Oct 7 calls on JBLU are now 3.1% out-of-the-money and expiring in three-and-a-half weeks.

Bullish trading was also seen in Weyerhaeuser (WY), Silver Standard Resources (SSRI), and Nustar Energy (NSH).

 Today’s Bearish Trading

Talisman Energy (TLM) is off 2 cents to $10.98 and a 14,500-contract block of Oct 10 puts trades on the Canadian energy company for 10 cents per contract when the market was 5 to 10 cents. More than 23,300 contracts traded against 26,230 in open interest. Looking at trade history, today’s apparent put buying might close a position opened on April 25th when an investor an investor was apparently opening a bullish October 10 – 13 bullish risk reversal (selling Oct 10 puts to buy Oct 13 calls). The stock is down 6.6 percent since that time and the investor is possibly buying the puts (to close) for fear shares will continue falling through the October expiration (24 days).

Bearish trading was also seen in in CenturyLink (CTL), CSX, and Aruba Networks (ARUN).

 Index Recap

CBOE Volatility Index (.VIX) is off .34 to 13.97 late-Tuesday, as the S&P 500 has seen whippy trading and is now flat heading into the final 30 minutes of trading. VIX was up 1.14 points, or 8.9 percent, to 14.26 Monday and so today’s modest dip is not really eye-popping. Meanwhile, overall volumes in the options market are relatively light today, with about 440,000 calls and 495,000 puts traded on the volatility index, the S&P 500, and other cash indexes, which is only about 70% the normal levels, according to Trade Alert data. Some macro players are possibly sidelined until greater clarity emerges with respect to budget talks in Washington and relative to future monetary policy from the Federal Reserve – which doesn’t meet again until October 30th. Data on New Home Sales and Durable Goods will be digested Wednesday morning.

Analyzing the ETF Market

US Natural Gas Fund (UNG), which is an exchange-traded fund designed to track the price of the commodity through futures contracts, is down 54 cents to $18.39 in active trading of 6.4 million shares after natural gas prices slipped 10 cents to $3.50 Tuesday. On the options front, trading in UNG is interesting. About 34,000 calls and 13,000 puts traded on the ETF so far. Weekly 18.5 calls, which are now 11 cents out-of-the-money and expiring at the end of this week, are the most actives. 11,900 traded, as some investors are possibly positioning for a short-term rebound in UNG. Shares have are down nearly $1, or 5.1%, so far this week.