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TFC Commodity Trading Forum

Wall Street's Wednesday Lunch Options

Chris Tyler, Optionetics.com
February 2, 2011

Following strong back-to-back gains and a happy crossing of junction 1,300 and 12,000, unsurprising quieter and mild profit-taking despite strong reports, dictate Wednesday’s action. As of 11:10 ET the SP-500 (SPY) is off -0.15% as bullish protesting takes a breather on the other side of an extended technical wall.

ADP employment data teased analysts this morning with its stronger-than-expected increase of 187,000 compared to estimates of 145,000 in private hiring. Investor reaction however has been well-contained for the “best but typically off-the-mark” indicator of what to expect from Friday’s BLS January nonfarm payrolls release.

Keeping bulls from reading too heavily into Wednesday’s tempting and supportive-looking data, gains of 2.05% over two days in the SP-500 and barriers of numerological interest broken have been a primary motivator to look the other way.

Secondarily and helping quiet bulls, Egyptian protests turned violent overnight as Mubarak supporters came out on the offensive for the first time since the anti-government protests began last week.

Despite the unexpected show of force, investors confident of having a better handle on geopolitical risks in the Middle East has prevented any sympathetic and slightly vicious profit-taking seen like last Friday during more uncertain conditions.

In those intertwined markets of influence, the US Oil Fund (USO) is up 0.60% but contained to mostly constructive inside day price action for a second session following its 7.25% 2-Day Upheaval pattern off key supports.

The modest show of support in USO comes despite weekly inventory data showing that US crude stockpiles rising to a new record 38.33M barrels as investor attention is still being paid to the possibility of supply disruptions through the Suez Canal.

On the corporate front, mixed earnings and reactions to those reports have produced a varied bag of tricks for bulls (APKT, ERTS, CAM and WFR) and bears (CHRW, WHR) in those individual names, but have largely failed to generate any real influence on the market.

In the spotlight for bulls, shares of Time Warner (TWX) are up 6.75% and hitting fresh intermediate highs following what some might call an unnecessary but key test of Golden Cross MA supports.

By the numbers, the entertainment giant beat by five cents with profits of $0.62 per share and generated stronger-than-expected revenues of 8.3%. The company issued “low teens” FY11 EPS growth versus estimates of 11.9% but appears to have appeased bulls by raising its yearly dividend by 11% from $0.85 to $0.94 per share.

For the bears, Broadcom (BRCM) shares are off -7.35% in that sometimes hard-to-handle thing called profit-taking but one being well-appreciated by yesterday’s detailed and optimistically-opined, now in-the-money Feb 45 and 45 opening put buyers.

Broadcom’s slippery price break below key 50SMA support comes on bearish mixed top and bottom-line results and in-line Q1 sales guidance. Being dismissed, the company did increase its repurchase program by $300M, raised its quarterly dividend by 12.5% or one-cent and management, truthfully, sounded quite chipper about its prospects on call.

Finally and in those sometimes accurate heat-seeking option markets, trader interest in mining giant Freeport McMoran (FCX) has spiked to nearly double its daily average following a technical gap fill within a bearish flag pattern—or has it?

Contracts traded in FCX have totaled more than 72,000 this morning compared to an average day’s take of 37,500. However, Wednesday is not exactly business as usual as today marks the ex-date for FCX’s 2-for-1 stock split. As much, strikes and premiums have been cut in half while positions have been doubled to keep accountants and traders happy.

As much, the illusion of added participation occurs as traders go about their business of possibly closing down their larger contract sizing and / or the result of new bulls, bears and hedge hogs now able to position with double the amount of calls or puts on a equal dollar basis—which may or may not be related to reading the tea leaves.

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