Welcome to the TFC Commodity Trading Forum.
Please feel welcome to join in on these informative ongoing discussions about trading futures and commodities.

The Trading Forum is intended for the open discussion of commodities trading. The management of this Forum does not agree or disagree with the ideas exchanged, and does not exert editorial control over the message posted herein. Read and post at your own risk. The risk of loss in trading or commodities can be substantial. We discourage the use of this Forum to promote trading that is acknowledged to be risky. Please note: many links from the Forum lead to pages on other web sites. We cannot take responsibility for nor endorse the information presented on those sites.

TFC Commodity Trading Forum

Wall Street's Monday Lunch Options

Chris Tyler, Optionetics.com
February 7, 2011

Bulls continue to work on building a strong 2011 on merger news and ever-improving investor confidence. As of 11:10 ET the SP-500 (SPY) is up 0.85% and continuing to improve upon a still uncorrected 21-week cycle...now a couple weeks overdue.

Waning geopolitical jitters, attached overseas gains and deal news have provided a continuation bid for the SP-500 as part of a rather stretched rally of 23 weeks with nary a pullback of any magnitude i.e. corrective properties, since the first half of November.

In the spotlight, “Merger Monday” headlines have been made possible this morning with industrial outfit Danaher (DHR). The company announced a near 10% premium deal valued at $6.8B for medical products concern Beckman Couter (BEC).

The deal will improve upon Danaher’s expansion of its life sciences division with Beckman’s biomed testing products expected to help generate $3.3B in sales. Intraday, shares of BEC are up 9.70% while DHR tacks on 3.50% on a show of support from impressed investors.

A second deal this morning involves offshore driller Ensco (ESV) looking to acquire peer Pride Intl (PDE) for $7.3B or $41.60 per share and has helped secure a bid in the energy sector (OIH, XLE).

Intraday, shares of PDE are up 15.65% and ESV off -4.75% and testing 50SMA support for a seventh or eighth time since beginning a now decent-sized uptrend of eight months.

On the earnings front, shares of India-based IT services giant Cognizant Technology (CTSH) have provided some potentially less-than-hot food for thought for bulls. CTSH is mostly unchanged in volatile trade after providing a penny beat of earnings of $0.66 per share and narrowly besting sales forecasts of $1.29B on revenues of $1.31B and year-over-year growth of 45.2%.

Unlike its rival Infosys (INFY) which gave a weak outlook a couple weeks back, management issued a mixed forecast. For the current first quarter it sees earnings of $0.63 per share and a penny shy of Street views on sales of $1.36B compared to estimates of $1.31B.

Looking further out, with the industry being at an “inflection point” and customers recovering from the financial crisis of the past couple years; the company issued a similar full year outlook with earnings of $2.68 per share just south of views of $2.71 on slightly stronger sales of $5.79B compared to $5.74B.

Technically, the bullish spin is shares of INFY are trading in a base of five weeks which found recent support off the 50SMA. For the more cautious-minded and somewhat embodied by today’s flat-line tussle, shares of CTSH have seen multiple base counts in a mostly uncorrected price run in excess of 420% from its November 2008 lows.

In Cognizant’s options, front month puts hold a narrow lead over call volume while a mild post-earnings volatility crush in the very lightly-traded March contract finds the price for protective strategies to be near implied range lows of the past couple months and mostly fair relative to statistical volatility.

Elsewhere and in those often intertwined markets of influence, shares of the US Oil Fund (USO) are being pressured by -0.70% as part of a now rather steep pullback following its “Mooo-barak-driven” gains several sessions back but nearly a lifetime ago by fast money accounting standards.

The iShares 20-Year (TLT) is mostly flat with its 0.10% gain but shares remain situated below key technical support broken last week on raised inflation concerns. At the same time, COMEX Gold (GLD) is flat and keeping bulls and bears guessing whether a recent pullback from highs represents a “Monbacky!” or marks a bearish flag that’s improving upon a triple slanted top.

In sector news, the semis (SMH, CRUS, TXN and NVDA) are taking a technical breather following last week’s relative strength performance and Friday’s select “Buy” upgrade from BofA. In the group’s place, a rotation into the even more influential financials (XLF) has made for a seamless transitory bid in the broader market Monday.

Dow components JP Morgan (JPM), American Express (AXP) and BofA (BAC) are atop the Percentage Leaders board with gains of 2.00% to 2.75%. News is light but investors could be reacting to BofA’s announcement late Friday of changes to resolve its mortgage issues and build its lending business.

Finally and in those sometimes accurate heat-seeking option markets, bulls are exploring their strategic options with Chesapeake Energy’s (CHK) calls. News this morning has the company looking to sell some of its properties as part of its “25/25 Plan” and whose proceeds could fetch upwards of $5.0B.

Heavy call-concentrated volume of nearly 50,000 contracts and a put/call of 0.30 have resulted in interest across-the-board and implieds bid to range highs of the past couple months and mixed to slightly rich relative to underlying shares.

Most active, the ATM Feb 32 call has seen a bit more than 4,000 contracts change hands. With matching open interest, less than two weeks left in the contract’s life and shares having made a sizable price run of 16% in six sessions; buyers dominating the overall order flow could be closing and rolling out their bets and giving themselves more time for the possibility of additional upside to play out.

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