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TFC Commodity Trading Forum

Wall Street's Tuesday Lunch Options

Chris Tyler, Optionetics.com
January 4, 2011

After a solid offensive move to kick off 2011, the bulls' defense comes in to fend off bears in modest profit-taking Tuesday. As of 11:05 ET the SP-500 (SPY) is off -0.20% in slightly more difficult to handle tickers but less “VIX’ing” behavior.

Following Monday’s merry, three out of four green flickering “BULL” “AT” “WORK” tickers-tape parade but a session also sporting a conspicuously prescient bear digging into the commodity coal mine (SLV, GLD); market bulls are making do with headlines of “Profit-Taking!” following an early premarket varietal of “Firm Start Expected As...”

The initial but none-too-prescient bid for the broader market was more or less predicated on “dog chasing” exploits as Asian exchanges and European bourses found a second day of strength on their own lighter and mixed reports.

For its part, the liquid iShares FTSE/Xinhua China 25 Index (FXI) is up 0.30% after tacking on nearly 1.50% out-the-gate but encountering zone resistance comprised of its 38% Fibonacci level, 50SMA, upper Bollinger.

Today’s intraday reversal in the FXI and one veering towards profit-taking also follows its snapback, bargain-hunting gains in excess of 5% the past week from a correction of several weeks.

Headlining for the early “toss the bull a bone” strength, trader talk Tuesday morning found investors considering oil and gas giants BP (BP) and Royal Dutch Shell (RDS.A) as being well-suited for a possible merger.

According to the London-based Daily Mail, the latter had mulled a takeover of BP in the aftermath of the Gulf Crisis and a time when shares were a good deal cheaper in terms of market cap and uniformly pooh-poohed by bulls.

Intraday, shares of BP are up 2.25%, about one percent removed from session highs and some odd 70% higher from exploratory drilling efforts to decade lows during summer 2010.

In economic news, reports have been mostly of little consequence to traders. German unemployment data showed a surprise increase, its first in 18 months.

According to analysts today’s unadjusted drop in payrolls of -85,000 in Germany was largely the work of an earlier-than-usual brisk bout of cold weather but underlying labor demand remains intact for “Europe’s motor economy” according to FT.com.

Intraday and stateside, factory orders for November increased by 0.7% compared to forecasts calling for a drop of -0.3%. At the same time but also failing to help bulls find their wallets, October’s data saw an upward revision of two-tenths of a percent to -0.7%.

Finally and in technical or “profit-taking” news of notice, shares of Dow component McDonalds (MCD) are shedding some shareholder fat with its pole position percentage decline of -2.25%.

Tuesday’s heavy volume drop also marks a technical breakdown below prior highs set in September near $76 a share which had served as support for bulls the past couple months.

According to Briefing.com, shares of MCD are under pressure due to whispers of a multi-million share block trade close to being served to patron bulls.

Intraday, option activity in MCD is even-matched between calls and puts on slightly agitated levels of interest with volume totaling 23,000.

Most active, the MCD at-the-money January 75 straddle is changing hands for $2.13 or the price of a large fries on slightly less hot but range bound implieds and breakeven just shy of 3% for the delta neutral, long curve but theta-prone strategy.

Chris Tyler
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site