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TFC Commodity Trading Forum

Wall Street's Friday Lunch Options

Chris Tyler, Optionetics.com
April 8, 2011

Light, mixed and secondary reports continue to put bulls and bears squarely on the fence. As of 10:55 ET the SP-500 (SPY) is for all intents and purposes flat on the session with inside conditions frustrating both bulls and bears trying to handle v-shaped bases and double tops.

It’s more of the same only even less so in Friday’s first half and in front of next week’s start to the first quarter earnings season. Technically, bulls and bears are faced with flat but bouncy inside day conditions for a fifth straight session, while enjoying even less help from fresh catalysts in a mostly quiet session of officially and unofficially-sanctioned market drivers.

On the economic front, wholesale inventories for February gained 1.0%, on par with estimates and mostly on pace with last month’s 1.1% increase. Across-the-pond, Germany’s trade balance came in stronger than estimates, assisted by an increase of 2.7% in exports.

The Bank of France trimmed its Q1 growth outlook by one-tenth of a percent to 0.7%, while the country’s Business Sentiment survey came in unchanged at 110. And the UK’s PPI Output NSA gained 0.9% for March compared to a prior reading of 0.5%.

In those sometimes intertwined markets of influence, Black Gold and the US Oil Fund (USO) are gushing to fresh highs. For its part, USO is up 1.30% within its steepened of late, up-channel while striking its best levels since the fall of 2008.

Primary support continues to be attached to the themes of still unresolved Middle East-based disruptions, a weak dollar which helps dollar-denominated commodities, as well as bulls anticipating greater than expected economic demand.

The last item of increased demand reflects investors looking the other way, rather than at tightening measures now underway and which could go on to stymie traders current flavor of optimism. Separately but tied at the hip, Copper (COPX), Silver (SLV) and COMEX Gold (GLD) are showing gains of 0.80% to 1.90% intraday.

Also this morning, a mixed USDA report showing global inventories dropping for corn and an unchanged below views harvest stateside has seen the Aggies (MOO, DBA) group react with varied trader apathy. In the spotlight for bulls trying to “handle” the market with cup-shaped bases of great importance, so they tell us, shares of MOO, DBA and CF Industries (CF) are showing modest and well-coifed gains on the session.

In corporate news, shares of Seagate (STX) are up 9.0% after the data storage provider reinstated its dividend and boosted confidence by saying it now expects its Q3 sales and margins to be near the upper range of prior guidance.

Expedia (EXPE) is atop the Naz’100 with gains of nearly 11%. The online travel outfit announced the company is being broken apart into two separate and publicly-traded entities. Traders appear to be embracing Wall Street’s calculations that 1 +1, when the second one is its TripAdvisor spin-off; is more than the sum of its parts pieced together.

And finally, in those sometimes accurate heat-seeking option markets, contract volume is swelling to more than 1,000% above average in Expedia with more than 115,000 traded thus far. Today’s traders however, are rather even-keeled as it relates to a put/call ratio of 1.15 which slightly favors put activity on the day.

Those same traders or maybe just one or two passengers have concentrated their greatest efforts in the out-of-the money May 27 call and May 23 put with near matching volume of 14,500 and little existing open interest. With implieds dropping about 20% from about 36% to roughly 30% the action could represent an initiating delta neutral strangle seller. However, this strategist’s guesstimate is either a directional collar or risk reversal is the culprit behind the action.

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