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TFC Commodity Trading Forum

Wall Street's Monday Lunch Options

Chris Tyler, Optionetics.com
April 11, 2011

Softer, optimistic and qualitative sound bites prove short-lasting as bulls regroup intraday near key support and Friday’s bearish close. As of 11:15 ET the SP-500 (SPY) is up 0.15% and “handling” a possible lower high double top, a bit better than those other more optimistic chart designs of grave meaning.

A trio of stories made the case for bulls to whip out their wallets for Monday’s opening bell, but have failed to build upon that drummed up excitement. In the spotlight, the African Union hinted at progress with Khadafy’s regime regarding peace talks.

Military strikes continue around Misrata, but traders have applied a bit of pressure to the US Oil Fund (USO). Following last week’s 4.59% run to fresh intermediate highs, shares of USO are off -1.25% in some well-earned profit-taking.

In other news this morning, traders briefly expressed their relief the Obama administration managed to avoid a government shutdown by cutting spending by $39.0B. Onto bigger and not necessarily better things, traders will now be focusing on a late May deadline for the US to get its house in fiscal order and a much larger trillion dollar dilemma.

Elsewhere and the other third of Monday’s early triple play for bulls, there’s Alcoa (AA) or more correctly, Alcoa’s typical role as the processional leader for earnings season. Intraday, a bit of early, historically correct optimistic behavior from the crowd, has subsided.

By the numbers and in front of tonight’s Q1 seasonal kick-off, the aluminum giant is expected to turn in a profit of $0.27 per share versus the prior year’s $0.10. This season the Street's focus will likely be tethered to whether companies can deliver confident outlooks in the face of the increased specter of inflation.

Technically, shares of AA are attempting to successfully hold onto a breakout of a multi-week cup base formed at its prior intermediate highs set in January 2010. Intraday, AA has pulled back near the unchanged level and remains about 1% to 2% above its prior highs while finding support by way of the 10SMA.

In other news, some weekend wheeling and maybe unsubstantiated dealings on the M&A front have resulted in some bullish support for both Baidu (BIDU) and Tyco (TYC). Naz’ 100 constituent and China-based internet search giant Baidu is up about 3% after word of a deal to partner up with still privately-held, internet social networking goliath Facebook and develop a similar China-based phenomenon.

For its part, shares of Tyco are up 3.50% and hitting fresh intermediate highs from a high and short handle consolidation. The large cap conglomerate is receiving another round of speculation the company will soon be in play with the name Schneider Electric being bandied about.

Last Wednesday, initial buzz of a deal in-the-works sent TYC up 2.12% and which broke shares out of a cup-shaped base on heavy volume. Schneider Electric is the the world’s largest manufacturer of voltage equipment but some analysts such as UBS see the possibility of a merger between the two as “unlikely.”

Shares of NYSE Euronext (NYX) are off -2.25% after it officially rejected a hostile $11.3B bid by Nasdaq (NDAQ) and the ICE (ICE) in favor of a deal with Deutsche Borse AG. NYSE Euronext’s board believes the DB1 proposal will gain shareholder approval given the existing backing from management and insiders, as well as that deal’s stronger synergies which should help tap future value.

Finally, some hostile and pending unions are looking even more poisonous for shareholders, well temporarily at least. Shares of Tenet Healthcare (THC) are off -15% following word its suing its unwanted suitor Community Healthcare (CYH) over allegations of Medicare fraud related to overbilling and admission practices.

Back in November, Community Healthcare, the country’s largest publicly-traded hospital, bid $7.3B or $6 a share for Tenet and one which was immediately rejected by its board as not even “remotely fair.” Shares of CYH are off -34% in ultra-volatile conditions.

For its part, shares of THC are at $6.40 and testing key weekly support in the $6.00 - $6.50 area which marked a former triple top for shares. Intraday and in those sometimes accurate heat-seeking option markets, the May 7 straddle market is seeing the heaviest interest by a fairly wide margin.

Slight favor amongst traders has found its way into the May 7 call with volume of 20,000 compared to the May 7 put’s 17,000 contracts. Premiums have spiked to multi-month highs with puts receiving a strong IV skew due to likely hard-to-borrow issues which might prevent shorting shares; though a condition that’s not entirely evident based on recent short interest statistics of 1.90 days-to-cover.

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