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TFC Commodity Trading Forum

Wall Street's Thursday Lunch Options

Chris Tyler, Optionetics.com
January 27, 2011

"Same as it ever was" mixed reports finds a tenacious bull attempting to accentuate the positive and talking heads shouting “SP-1300!” As of 11:10 ET the SP-500 (SPY) is flat after a quick jab at 1300 and punch lower in more of the same somewhat VIX’ing and uncorrected price behavior.

In “mooo-ving” economic news, bulls were pleased intraday with surprise word November pending home sales increased by 2.0% compared to estimates calling for a decline of -0.5%. The report proved strong enough to incentivize a brief capture of 1300 in the SP-500 before bears vandalized bulls numerical and closely-watched trophy by making it a point of resistance and spot with which to take profits.

A pair of reports out in the premarket on durable goods and weekly claims proved disappointing from the get-go. Traders took a presaged optimistic start to the session and turned it into a slightly wobbly one after December durable goods dropped by a larger -2.5% compared to forecasts of -1.5%.

Axing the volatile transportation component, orders increased by 0.5% but fell just shy of estimates calling for 0.6%. Separately, initial claims for jobless benefits rose by a much stiffer-than-expected 51,000 to 454,000 and levels not seen since October and well above the forecasted 410,000 economists polled by other analysts had come to expect.

In those sometimes intertwined markets of influence, one of the ECB’s top dogs made comments of the increased cost of imported goods carrying an inflation threat which could no longer be ignored according to Reuters and through the CNBC grapevine.

The verbal threat, along with the consensus view of macro data having been “quite positive” of late has nonetheless proved unnerving for bulls in commodities. Both gold (GLD) and silver (SLV) have taken a sharp reversal lower intraday despite thosemetals inflation hedge and green shoots properties.

Intraday, shares of GLD and SLV are off -1.75% and -2.10% respectively with the former hitting fresh three month lows. Separately and equally baffling, black gold (USO) has reneged on its bullish pullback / corrective low signaled by yesterday’s bullish engulfing candle with its loss of nearly -2.00%. Golden Cross, up channel and 38% support are still intact for a different breed of tenacious bulls still in the mix.

On the corporate side, more of the same mixed reports have mixed it up slightly after a couple sessions of mostly profit-taking style reactions; irrespective of what’s said or not said. One name pleasing bulls on a couple levels is Naz’ 100 component and telecom giant Qualcomm (QCOM).

Shares of QCOM are up 5.50% and hitting its best levels in nearly one and one-half years after the company beat by $0.10, managed better-than-expected revenue growth of 25% and issued above-views FY11 sales and profit guidance.

Also for the bulls and a rather large and very much involved 30% short interest, shares of Netflix (NFLX) have catapulted higher by nearly 14% to marginal all-time-highs. The online media giant beat by $0.16, topped 20.0 million subscribers on a better-than-expected 3.08M customer base increase and raised its Q1 EPS and sales outlook to above views.

On the options side, positioned premium bulls in NFLX’s weekly ATM straddle and strangle have enjoyed substantial gains this morning. Implieds have been chopped roughly in half for ATMs, but the sizable gap and inability to hedge effectively has proven the other side’s undoing as the move in shares is about 30% to 40% larger than the very well-bid, pre-earnings line.

By the numbers, the NFLX Jan 185 straddle has expanded from $17.75 on 160% IV to essentially a deep in-the-money call valued at $23.45 with no extrinsic value or implied readings required.

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