from the XPound Blog team
Market Update 11/20/13
Stock market averages gave up midday gains and finished in the red Wednesday. Earnings results were mixed. JC Penney (JCP) rose 8.3 percent and Deere (DE) added 2.1 percent in the wake of their respective profit reports. Home improvement retailer Lowe’s (LOW) saw a 6.2 percent post-earnings drop. Economic data was also in focus this morning when a report on Retail Sales showed an increase of .4 percent for October and .3 percent better-than-expected. Separately, the Consumer Price Index [CPI] eased .1 percent last month, while economists were expecting no change in the gauge of inflation at the consumer level. A third report showed Existing Home Sales declining to a 5.12 million annual rate for October, which was below expectations of 5.2 million. Lastly, Business Inventories were up .6 percent in September and .2 percent more than expected. At the end of the day, the data painted a mixed picture. Treasury bonds were holding modest gains and the yield on the benchmark ten-year dipped back below 2.7 percent ahead of the release of minutes from the latest Federal Reserve meeting. The minutes indicated that officials believe the impact from the government shut down will be temporary and they will begin to scale back stimulus (taper) if economic data improves further. Treasury bonds fell on the news and the yield on the ten year moved back towards 2.8 percent. Meanwhile, the Dow was modestly higher midday, but faltered in afternoon trading to close down 59 points. The NASDAQ lost 9.5.
Today’s Bullish Trading
Gamestop (GME) is down $1.09, or 2 percent, to $52.10 in active trading ahead of earnings. The video game retailer is due to report earnings tomorrow, before the opening bell. On the options front, volume is running 6X the daily average. 23,000 calls and 19,000 puts traded on the stock. Two of the top trades on GME were part of a spread, in which the investor was apparently buying 2,500 December 55 calls on the stock for $1.96 and selling 5,000 December 60 calls at 70 cents. The Dec 55 – 60 (1X2) call ratio spread, for 56 cents, is an advanced strategy and appears to be a bullish short-term play targeting a move to $60 through the December expiration, or a 15.2 percent move higher over the next 30 days. The stock moved up 9 percent on August 22 when the company last reported. Weekly 57 calls and 47 puts, expiring in two days, on GME are actively traded today as well.
Bullish trading was also seen in Foster Wheeler (FWLT), Entergy (ETF), and Owens Illinois (OI).
Today’s Bearish Trading
Audodesk (ADSK) is also seeing increased options activity ahead of earnings. The application software company is due to report after the close tomorrow. Shares are up 3 cents to $42.30 and options volume is running 3.5X the daily average, driven by a large three-way spread. The investor was apparently selling 5,000 December 47 calls on ADSK at 63 cents, buying 5,000 December 41 puts for $1.15 and selling 5,000 December 38 puts at 48 cents. In other words, Dec 47 calls were sold to help finance a Dec 38 – 41 put spreads. The position is opening and seems to be expressing concerns that shares might fall over the next three-and-a-half weeks. A shareholder possibly initiated the spread as a type of a short-term hedging strategy against stock ahead of the profit report.
Bearish trading was also seen in Activision Blizzard (ATVI), Coach (COH), and Shanda Game (GAME).
CBOE Volatility Index (.VIX) sees relatively little movement today despite the afternoon market decline. VIX tracks the implied or expected volatility priced into options on the S&P 500 and is up .10 to 13.49 after the S&P 500 shed 7.87 points to 1,780. On the options front, trading in VIX options is relatively active despite the lack of movement in the index. It was the expiration for November options on the index and the settlement value for the November contract was 14.12. Some investors are probably opening new options positions in later expiration terms now that the November options have come off the board. 457,000 calls and 197,000 puts traded in the VIX pit. December 15 puts and December 23 calls were the most actives.
Analyzing the ETF Market
SPDR 500 Trust (SPY) is off 68 cents to $178.36 and Weekly (11/22) 178 puts on the exchange-traded fund are today’s most actively traded options contract. 82,278 contracts traded against 41,201 in open interest. Most of the action has been in smaller lots and the largest trade is 2221 contracts for 21 cents per contract. SPY is an exchange-traded fund that holds the same stocks as the S&P 500 and some investors are possibly buying the short-term puts on concerns about additional losses on the SPY through the rest of this week. 11/22 Weekly options expire at the end of this week.