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TFC Commodity Trading Forum

Wall Street's Friday Lunch Options

Chris Tyler, Optionetics.com
January 14, 2011

The SP-500 takes to the high road offered up by corporate while metals continue their less precious march down a road less traveled of late. As of 11:05 ET the SP-500 (SPY) is up 0.30% after a bit of out-the-gate profit-taking and keeping to technical-based resolutions to make 2011 a good one.

After a very modest stab at profit-taking, bulls in the broader market have regrouped and managed to hit fresh intermediate highs in Friday’s first half largely due to strong reports from JP Morgan Chase (JPM) and Intel (INTC).

Well-treaded top and bottom line beats not worth repeating and upbeat guidance have been worthy of inspiring, not to be messed with, influential sector strength in the financials (XLF, BAC and WFC) and semis (SMH, AMAT and VSEA) despite mixed trader reaction in the reporting instigators themselves.

In the technical spotlight for bulls, shares of Morgan Stanley (MS) which reports next week are helping float the Anchor Bankers with its gain of 3.0%.

In the semis, while INTC toils with a mild loss of -0.90%, Stifel’s bullish call on the group’s equipment manufacturers due to Intel’s “significant upside FY11 cap-ex benefits” and a tied at-the-hip upgrade to KLA-Tencor (KLAC) and Lam Research (LRXC) has helped Novellus (NVLS) to an outsized gain of 10.0%.

On the economic front a flurry of mixed economic data throughout the morning more or less helped apply some early weakness in the market. Intraday however, initial bearishness towards the likes of retail sales [0.5% vs. 0.6% est.], CPI [0.5% vs. 0.4%, core: 0.1% vs. 0.1%], Michigan [72.7 vs. 74.5] and business inventories [0.2% vs. 0.8% est.] has been upended after further review or onto the next thing by analytic bean counters, HFTs and neural networks.

In those sometimes intertwined markets of influence, COMEX Gold (GLD) and the iShares Silver Trust (SLV) are tripping off the path of the 50SMA road. For its part and the weaker of two as discussed in detail in this morning’s Hot Shots: Less Golden Crossroads, GLD is off -1.10%, breaking a flag pattern set against resistance—and likely making good on some very unusually heavy and bearish-looking March contract activity on Thursday.

Inspiration for getting gold bugs a bit buggier, China surprised the markets overnight with news it will initiate yet another increase to its reserve requirement ratio for its member banks. That action, meant to keep inflation in check and an obvious lack of support for safe-haven buying by increasingly risk acceptant investors, are Friday’s top polled reasons for schnitzeling a little bit more in some harder-to-handle asset groups.

Finally and in those sometimes accurate heat-seeking option markets, one name seeing unusually heavy activity and a more unusual price break away from its financial peers is AIG (AIG). The insurer is off nearly -5.50% and has seen about 80,000 contracts trade and more than double its average rake.

Word this morning is the company has executed its previously announced and well-broadcast recapitalization plan with Uncle Sam with traders obviously acting sympathetic towards a “sell the news” response. Option traders seem to agree as well with puts outpacing calls by a 1.55-to-1.0 margin but then again, if it were that easy, there’d be nobody to take the other side.

With high short interest and attached favor to implieds in AIG’s puts, it’s hard to say whether today’s slightly mad bull is getting bearish, simply performing a “Monbacky!” with protection or perhaps even selling the put in order to collect premium and / or potentially buy at below market prices within a sometimes difficult to recognize uptrend.

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