Wall Street Rallies Ahead of House Vote

Market Update – October 16, 2013 from optionsXpress

Stock market averages opened higher and closed with solid gains Wednesday. Hopes for a deal to extend the debt ceiling and restore government funding helped set the table for the morning strength after the House and Senate prepared to vote on a bill to end the recent impasse.  The Senate later passed the bill and now it awaits a vote this evening in the House before the 12:00am ET deadline.  Meanwhile, the day’s only economic data fell short of expectations after the NAHB Homebuilder Sentiment Index for October printed at 55, which was a four month low and below expectations of 57. On the earnings front, Bank of America (BAC) was up 2.5 percent on the heels of its results. Intel (INTC) was also up on earnings. Yahoo (YHOO) fell.  Crude oil strengthened this afternoon and added $1.02 to $102.43. Gold rose $6.5 to $1280. On Wall Street, the Dow was up 200 points midday, and after dipping a bit in the afternoon session, rallied late to close up 206 points. The NASDAQ added 45.5 points.

Today’s Bullish Trading

Noble Corp (NE), a Swiss-based oil and drilling company, added 21 cents to $37.57 and options volume on the stock was running 3X the daily average ahead of earnings. The company is due to report after market hours Wednesday. About 24,000 calls and 6,950 puts traded on the stock, a ratio of more than three-to-one. Interestingly, much of the call volume was concentrated in October call options that have two trading days of life remaining after today. Oct 38.5s were the most active. 11,595 traded against 826 in open interest. October 37.5, October 39 and October 40 calls on NE saw action as well and the increased activity might reflect expectations for upbeat news when the company reports later today and holds a conference call tomorrow.

Bullish trading was also seen in Comcast (CMCSA), Nustar (NSH), and EMC.

Today’s Bearish Trading

Molycorp (MCP), which tumbled 21.1 percent yesterday on news of a stock offering, lost another 9 cents to $5.49 in active trading of 42.5 million shares Wednesday. Options volume on the rare earth materials company was 3X the daily average. Approximately 29,000 calls and 55,000 puts traded in MCP today. October 5 puts, which are now 49 cents out-of-the-money and expiring at the end of this week, were the most active. 13,695 contracts traded. October 5.5 puts were heavily traded as well, as some investors were possibly taking positions on concerns about further losses in MCP in the days ahead.

Bearish trading was also seen in CA Inc (CA), Decker Outdoor (DECK), and Ironwood Pharmaceuticals (IRWD).

Index Recap

Implied volatility fell sharply across much of the options market, as players seemed to be discounting a short-term resolution to the budget impasse in Washington. CBOE Volatility Index (.VIX), which tracks the expected or implied volatility priced into S&P 500 Index options, dropped 3.95 points, or 21.2 percent, to 14.71. Meanwhile, implied volatility in the Dow Jones, as measured by the VXD Index, dropped 3.05 to 15.73 and NASDAQ 100 Volatility (.VXN) slipped 2.37 to 16.40. Not to be outdone, implied volatility in the Russell 2000 Small Cap Index (RVX) tumbled 3.40 to 18.82.

Analyzing The ETF Market

iShares Long-term Treasury Bond Fund (TLT) added $1.31, or 1.3 percent, to $105.85 in active trading of 14.4 million shares amid hopes that the end to the budget impasse in Washington will lend some stability to the Treasury bond market. TLT finished higher and options volume on the ETF was 3X the daily average. 105,000 calls and 81,000 puts traded on TLT today. Weekly 106 calls, which expire at the end of next week, were the most actives. Nearly 30,000 traded, as some investor were possibly taking positions on the view long-term Treasuries will rise, and yields might fall, through the 10/25 expiration.

optionsXpress Equity Team.     xpoundnewsletter@optionsxpress.com