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TFC Commodity Trading Forum

Wall Street's Monday Lunch Options

Chris Tyler, Optionetics.com
February 14, 2011

“Dude, it’s a SELL?” While the broader market clings to its tenacious gains of the past couple months in quiet trade, bulls in Dell calls are out in force in front of Tuesday’s earnings release. As of 12:20 ET the SP-500 (SPY) is mostly flat but up by 0.05% in choppy trade as bulls attempt to double their pleasure from the March 2009 bottom and a more current long in-the-tooth rally.

In a rather quiet Monday but one so close to claiming the brass or umm, copper, silver or gold-coated ring of a percentage double from March 2009’s devilish “666” bottom in the SP-500; stateside bulls are trying to find comfort with overnight gains out of Asia.

Overseas markets and spearheaded by the Shanghai Composite which finished up 2.54% found support in front of this week’s China CPI data on renewed trader optimism. The consensus now expects the data to prove cooler-than-expected, therein dampening inflation fears and reducing the possibility of additional rate hikes which might disrupt global growth.

A modest bit of Merger Monday headlines may also be acting as minor market support this morning. Shares of Hughes Communications (HUGH) are off -3.35% at 59.45 but up more than 41% over the past month. Slightly too-well-played rumors tied to a January announcement of Hughes hiring a strategic advisor have found some closure with EchoStar (SATS) looking to acquire the company for $60.70 or roughly $2.0B.

Separately, bulls in small capper oil and gas outfit Hercules (HERO) are doing some heavy lifting of shares after management announced the purchase of key assets from Seahawk Drillings (HAWK) in lieu of 22.3M shares of common stock as that company prepares for bankruptcy.

Intraday, HERO is up 17.50% to a less impressive sounding 4.25 with assistance from a couple favorable broker calls, while shares of HAWK dive deep underwater by nearly 39% to 4.85.

In those often intertwined markets of influence, shares of the 20-Year (TLT) are up 0.40% and poking a bit more steam out of yields as a bearish trend continues to be challenged by a possible triple bottom of about 20 months in length.

The iShares Silver Trust (SLV) is up 2.15% despite a slightly firmer US Dollar (UUP). The price action has SLV attempting a short consolidation breakout within a multi-week cup to bullish eyes or possibly mounting a retest of highs following a slanted bearish triple top per the less optimistically-inclined.

And shares of the US Oil Fund (USO) are off an additional -0.50% and adding to last week’s more suspect looking uptrend. Technically, USO is testing prior uptrend support near its Golden Cross levels as part of a double bottom structure.

Finally and in those sometimes accurate heat-seeking option markets of notice, Dell (DELL) is seeing some heavy call interest in front of Tuesday night’s earnings release. With shares up 0.60%, more than 50,000 calls have traded compared to an average day’s total tally of about 7,000 and nearly four times the interest in puts today.

Most active on the radar, traders appear to be rolling out or initiating afresh, long call positioning in the out-of-the money March 15 call. Nearly 23,000 contracts compared to open interest of 3,700 have changed hands. The next two most active hot spots are the ATM Feb 14 and 15s with large open interest still well above the 12,100 and 5,500 contracts traded in each respectively.

Technically, shares of DELL are putting together a four month long bullish weekly “W” or double bottom pattern with a handle developing near the midpoint of the price structure. Premiums are statistically high, rich compared to typical range values and prone to a volatility crush. Nonetheless, the logic, with no computer required, of rolling out and up into a contract priced at $0.20 versus holding at $0.40 makes enough “sense and cents”; maybe even if traders are collectively doubling their contract pleasure.

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