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TFC Commodity Trading Forum

Wall Street's Friday Lunch Options

Chris Tyler, Optionetics.com
February 4, 2011

Despite jobs data failing to deliver on this week’s improved economic outlook, modest profit-taking is far from putting bulls’ out-of-work just yet. As of 11:10 ET the SP-500 (SPY) is off -0.27% and giving bulls a little something more, but not too much, to think about other than “Buy, Buy, Buy!”

On the economic front, the week’s most anxiously-awaited and closely-watched regularly scheduled event hasn’t exactly lived up to its sometimes volatile billing or confirmed Thursday’s late day dose of investor optimism courtesy of BernankeSpeak.

January’s nonfarm payrolls increase of just 36,000 fell well-short of official estimates of 148,000 and more beefed up whisper forecasts courtesy of Wednesday’s strong ADP jobs teaser and Thursday’s upbeat dialogue of imminent payroll strength per the Fed Chief.

In the other hand holding a wand sometimes worthy of “Abracadabra!” economic magic, investors did get a taste of Bernanke’s hinted lower unemployment Friday. A surprisingly lower jobless rate of 9.0% compared to consensus views calling for 9.5% and up from the prior month’s 9.4% was provided.

Unfortunately, analysts and economists seem to be in agreement the better-than-expected figure is a result of “changes in prevailing population estimates” according to the likes of Briefing.com or possibly the result of the habitually unemployed falling off the radar.

Assisting market bulls in their seemingly defiant bid at constructive profit-taking versus a mad money stampede to “schnitzel a little” following 21 plus weeks of higher and higher grazing; hats go off to the tech-laden NASDAQ, with the semiconductor sector (SMH) in the relative strength pole position.

In the spotlight for growth traders, shares of specialty chip maker Cirrus Logic (CRUS) are up nearly 6%, well-extended past any “proper” buy points and stretched above prior up-channel resistance. Possibly driving further momentum into shares today is word of inside sponsorship with Cirrus’ Director purchasing roughly $3.0M worth of stock in the open market this week.

Another growth stock doing quite well and a member of the IBD 50 is Netlogic (NETL). Shares are up 3.0% after managing to hold up-channel support broken during Thursday’s 9.28% earnings-related gapper.

Within the semiconductor HLDRs components, shares of Texas Instruments (TXN), Broadcom (BRCM) and NVIDIA (NVDA) are seeing lesser but more influential gains of 1% to 2.50% intraday. All three were “reinstated” this morning as “Buys” over at BofA.

Elsewhere and in those sometimes intertwined markets of influence, the iShares 20-Year (TLT) is off -0.90% and hitting fresh intermediate lows as it continues to bearishly follow-through on a descending triangle breakdown from earlier this week.

Separately, the US Oil Fund (USO) is under pressure by -1.50% and being drilled below 50SMA support on fresh speculation Egyptian President Mubarak will step down despite his insistence this week of staying on during the country’s transition to a new Democratic regime.

Finally and in those sometimes accurate heat-seeking option markets, fellow semi Xilinx (XLNX) is tacking on about 2.50% and seeing massive call-concentrated interest. Nearly 100,000 total contracts have changed hands this morning with 96,000 coming in the calls.

Before you think “Confirmation for the bull!” you’d better realize those other options sometimes available to call traders. In this instance, involvement is exclusively the result of optimistic, but not that optimistic, option strategists willing to make a play on Xilinx’s upcoming dividend.

The action amounts to massive deep in-the-money buy-writes being swapped back and forth on strikes with sufficient open interest and corresponding put values less than the upcoming $0.16 dividend whose ex-date falls on Monday. The name of the game is to wake up Monday and find out the other guy long the strike you effectively shorted via the “dividend play” didn’t exercise his right to be a stock bull...for better and sometimes worse.

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