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TFC Commodity Trading Forum

Wall Street's Wednesday Lunch Options

Chris Tyler, Optionetics.com
January 19, 2011

There’s one wreck in tech but it's mostly disappointing earnings and a uniform drag in those influential Anchor Bankers that's putting bulls under pressure Wednesday. As of 11:10 ET the SP-500 (SPY) is off -0.65% as technical-based resolutions to make 2011 a good one take a temporary backseat to modest and overdue profit-taking.

In the spotlight and arraigned for criminal acts committed on bulls, those sometimes heavy Anchor Bankers are being given the quick heave-ho Wednesday on generally disappointing earnings releases. Atop the food chain, Goldman Sachs (GS) beat by a very modest and once, not-long ago, unthinkable three cents with profits of $3.79.

The still venerable “Mr. Market”, but a financial institution now more vulnerable to lackluster results added insult by announcing a weaker-than-expected revenue drop of -10.1% on sales of $8.64B compared to estimates of $9.0B. Shares are off -3.00% intraday.

Fellow bankers of notice and influence also saw mostly mixed results and more uniform profit-taking the net result. State Street (STT) issued a penny beat of $0.87 per share while growing revenues by 9.6%. US Bancorp (USB) managed a three cent surprise with profits of $0.49 per share and sales growth of 7.9%. Intraday, STT is off nearly -4.00% and USB down -2.60%.

Northern Trust (NTRS) is under the most technical pressure in Wednesday’s first half. After issuing a miss of -$0.11 with profits of $0.59 per share on declining revenues of -4.6% shares have come in volatile contact with 50SMA support on a drop of -3.60%.

Lastly, fellow anchor Wells Fargo (WFC) announced an in-line but obviously prone to profit-taking rake of $0.61 per share and expected -6.4% drop in sales. Intraday, shares are off by a modest -1.25% and still holding the sometimes coveted bullish pattern of higher highs and lows.

The tune or umm “iTune” has been a bit different out of tech this morning with handy and appreciated large cap tech beats from Apple (AAPL) and Dow component IBM (IBM). Intraday, shares of AAPL are up a pleasant 0.75% after striking fresh all-time-highs by the narrowest of margins.

By the numbers, Apple produced some healthy-looking green with its profit beat of $1.04 on earnings of $6.43 per share and stronger-than-expected sales growth of 70.5% across all “i-Product” lines with total revenues of $26.74B.

The computing gadget goliath has also appeased bulls still possibly harboring lingering concerns about Steve Jobs medical leave, by issuing uncharacteristic above-views guidance.

On the options front, reaction in Apple’s still mostly at-the-money straddle has seen a huge bite taken out of it as a result of its implied volatility crush and theta quickly eating away at the remaining premium. Implieds around 61% and a dollar price tag of about $15 per spread have been nearly chopped in half by both measuring tools.

Big Blue is showing slightly more big green than Apple with its intraday gainer of 2.75%. The bid comes despite IT and computing giant’s more modest top and bottom-line beat and status quo, in-line forecast but one peppered (we’re guessing) with rosier-colored qualitative sound bites from management.

And finally, with every “All Aboard!” signal there’s always a caboose in the rear of the locomotive in motion. In Wednesday’s session, specialized semi outfit Cree (CREE) is taking on that role for investors with shares derailing by -13.50% and blasting its mostly handlesque consolidation pattern supported by last week’s Golden Cross.

Cree stunned bulls with its all-around disappointing results complete with downward and well-below consensus views outlook. For its second quarter, the company announced earnings of $0.55 per share which came in shy of Street estimates by three cents. Revenues of $257M also fell short of forecasts of $276.59M.

Wednesday’s outsized technical damage though is largely due to its hard-to-handle outlook. For its third quarter the company now sees profits of $0.38 - $0.45 compared to estimates of $0.58 per share on revenues of $245 - $265M versus $288.33M.

In economic news, housing starts for December disappointed with their weakest results in more than a year’s time. Analysts and traders alike were surprised to learn of a -4.3% drop to 529,000 annualized units versus estimates of 550,000.

In the other hand not holding a hammer to bulls heads, building permits which measure future intentions managed to offset much of traders’ collective anxiety by showing a substantially stronger-than-expected 16.7% monthly spike to 635,000 compared to forecasts of 560,000.

Finally and in those sometimes accurate heat-seeking option markets, eBay (EBAY) is seeing some heavier-than-average auctioning of its calls and puts in front of tonight’s earnings report. Analysts expect the online sell-it-yourself market provider to produce profits of $0.47 per share and up about 6% from the year ago period.

With shares mostly flat, EBAY is testing 50SMA resistance yet also maintains a bullish-looking weekly whose pullback pattern has found support off prior highs from March 2010. On volume of 30,000 the calls are finding favor by a near two-to-one margin.

Most active on the session is eBay’s slightly delta’ed January 30 straddle market which has traded a rather even 5,500 calls and 5,000 puts. With the dwindling vega component, implieds of about 100% and shares at 29.30 translate into a package price of $1.80 per spread. Personally, I’m just not sure how great of a deal that is for today’s bidders.

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