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TFC Commodity Trading Forum

Wall Street's Tuesday Lunch Options

Chris Tyler, Optionetics.com
January 25, 2011

A pair of less-than-jolly good reports from across-the-pond and a close enough, optimistic brush with “Dow 12K!” are reason enough for bulls to schnitzel a little Tuesday. As of 11:15 ET the SP-500 (SPY) is off -0.40% in some still long overdue profit-taking following a 21-week cycle.

It wasn’t exactly a technical rogering for Britain's FTSE but what was likened to an “awful, dreadful” surprise slip of -0.50% in the UK’s Q4 GDP compared to estimates calling for growth of 0.50%; was one early motivator for stateside investors to take their own cue of profit-taking from.

According to economists polled by other analysts from across both ponds, the GDP miss puts Britain at risk of a double dip recession and limits its central bank from fighting increasingly concerning inflation risks.

A second report finding bulls dragging their feet comes from Spain earlier this morning. The country’s Economy Minister stated member banks need to raise additional capital or face “Tio Sammi” taking control of those institutions.

On the economic front stateside, data has been mixed. In the premarket, a slightly more severe drop of -1.59% in the Case Shiller housing index compared to estimates of -1.50% went mostly unpunished by a market already primed for slight profit-taking out-the-gate.

Intraday word of stronger-than-expected consumer confidence for January and November Home Price Index managed to goad bulls ever-briefly above the unchanged level resulting in a fractional gasp at fresh intermediate highs of 11,985 or for all intents and trading purposes; “12K!” in the Dow.

Delighting bargain hunters momentarily on the 5-Minute chart, consumer confidence jumped to an eight month high of 60.6 and well-above estimates of 53.5. Hitting the wires simultaneously, FHFA index came in flat following a downward revision from 0.7% to a 0.2% increase for October.

On the corporate side, heightened expectations obviously built into the broader market have also begun to work against bulls as those same traders look to take profits irrespective of actual results.

In Tuesday’s wave of reports, Dow components 3M (MMM) is off -2.50% after narrowly beating both profit and sales views and only managing to beef up its outlook for FY11 to the “weak bracketing” variety.

By virtue of its overall and obviously “disappointing” results, MMM has been instrumental in helping anchor the price-weighted Dow index well-below its well-cheered numerical test of 12,000.

Influential semiconductor outfit Texas Instruments (TXN) is down -1.70% despite its easy $0.15 profit beat on earnings of $0.78 per share, slight 17.3% sales beat in-line sales and bracketing but bullishly-placed Q1 revenue guidance of $3.27 - $3.55B versus Street views of $3.32B.

Fellow tech shop VMware (VMW) which until very recently had enjoyed the good fortune of its inclusion in the cloud computing niche, has succumbed to further gravitational pulling this morning.

Shares of VMW are off -4.00% after beating by two cents on earnings of $0.46 per share, eclipsing sales estimates with 37.5% revenue growth and issuing upside and above views revenue guidance for its Q1 and FY11.

Technically, VMW has corrected nearly 16% from 97.61. With those highs “oh, so close” to the $100 century marker, the stock offers good support to not sticking around for hard-to-handle lessons in numerology Wall Street style.

One name actually performing in accordance with its headline beat is Dow component Travelers (TRV). The insurance giant is up about 2.50% after beating by $0.22 on earnings of $1.89 per share.

Technically, shares of TRV are attempting a breakout above its “W” base construction after hitting fresh intermediate highs. For the uninitiated, a failure by bulls to look smart by the Closing Bell will have positioned bears declaring a more fragile-looking double top as having occurred.

Elsewhere, the dry bulk sector is looking like a technical shipwreck following Genco’s (GNK) downgrade to “Hold” from Deutsche Bank. Shares of GNK are off -7.25%. A sympathetic nod of concern can be found in Dryships (DRYS) -4.00% sinking below its 200SMA

Fellow shipper Eagle Bulk (EGLE) is off a leading -11.00% and in worse technical disrepair following word of minor accounts receivable exposure to Korea Line Corp and its decision to file for protective receivership.

Finally and in those sometimes accurate heat-seeking option markets, Juniper Networks (JNPR) is seeing roughly four times its average daily tally on volume of 23,000 contracts in front of tonight’s earnings release.

With shares off fractionally, puts are finding easy favor amongst traders by a margin of nearly 2-to-1. Most popular by a narrow margin are the at-the-money March 35s. Volume stands at 2,800 in obvious “to open” positioning from the work of mostly smaller traders.

The surrounding March 34 and 36 put strikes have also seen strong opening volume, while the Jan 35 puts have heavily-traded in more difficult to interpret activity based on matching open interest.

Technically, shares took a hard hit last week following F5 Network’s (FFIV) below views guidance and have failed to recover. In the interim JNPR has consolidated in a bearish flag pattern with its 50SMA acting as resistance.

Before one thinks today’s fore-mentioned put-side order flow is all about protective positioning or outright bearish speculations, weaker but slightly rich premiums suggests the proverbial other guy could be selling puts, reverse calendars or maybe bullish verticals in anticipation the worst is already priced in. Stay tuned as I'm sure you will.

Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
Optionetics.com ~ Your Options Education Site