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TFC Commodity Trading Forum

Wall Street's Wednesday Lunch Options

Chris Tyler, Optionetics.com
April 13, 2011

With headline help from JP Morgan & Chase, investors are indulging in a slight bit of bargain-hunting, here and there, but not everywhere. As of 11:05 ET the SP-500 (SPY) is up 0.35% as bulls try to handle a double top a bit more optimistically back above the closely-watched and always well-played 50SMA.

A decent but possibly, more endearing report than otherwise from banking giant JP Morgan & Chase (JPM), following Alcoa’s (AA) disappointing kick-off to the Q1 earnings season, has been in the spotlight for bulls looking to make “buy-gones” from Monday morph into Tuesday’s bargain-hunting opportunities.

By the numbers, JP issued a $0.12 beat on profits of $1.28 per share on stronger-than-expected sales of $25.79 versus forecasts of $25.27 and up 67% from the year ago period. Revenues did drop -8.5% during that same time, but Basel I Tier 1 cap requirements fared a bit better during Q1 compared to Q4.

JP’s CEO Jamie Dimon sounded chipper but also delivered a somewhat mixed outlook. Management was pleased with the bank’s performance across a range of units, but “extraordinarily high losses” tied to mortgage-related issues are still a work in progress.

Mr. Dimon went on to say the company is “fully engaged” in fixing those problems and will strive “to build the best mortgage business going forward” according to Briefing.com. Intraday, shares of JPM are barely up by 0.10% after opening higher by about 1.50%.

Also assisting bulls into the market as buyers on Tuesday is the SP-500’s confident V-shaped base which turned into a technical “double top” rattler by Monday’s closing bell. I guess you could say bulls have been allowed to let those “buy-gones” turn into Wednesday's bargain-hunting opportunities.

A third catalyst or lack thereof, have been fading calls to sell oil and lock in profits from Goldman and relative quiet out of Japan following Tuesday’s worrisome environmental upgrade by officials; the worst since the Chernobyl incident in 1986.

In those often intertwined markets of influence and leading (still) the way for bulls, shares of the US Oil Fund (USO) are up 1.25% and bouncing off loose uptrend support found from prior highs wedged between its properly-aligned 10 and 30SMAs.

Separately, a flight-to-safety in treasuries Monday has seen some recalibrating of that concern. For its part, the highly liquid 20-Year (TLT) proxy is off -0.25%. Technically, a daily double bottom formed slightly above a monthly double pattern has stalled at 50SMA overhead resistance.

Elsewhere and in Corporate America or foreign boardrooms of notice, Schneider Electric of France denied trader chatter this week of the company looking to make a $31.0B bid for Swiss-based, US-listed Tyco (TYC). Shares of TYC are off about -2.50% on the heels of gains nearing 11% in the prior two sessions and sporting a market cap of about $24.0B or approximately 24% below excited claims of late.

Option traders are showing continued preference for calls by a 2.5-to-1.0 margin on heavy overall volume of about 80,000 contracts with concentrated interest in the out-of-the-money April and May 55 calls. High open interest and slightly pressured but elevated premiums make determining order flow and the opening and closing of positions in Tyco’s most active options, a bit more challenging than otherwise.

Also on the M&A front, the rumor mill is attempting to buzz with word of a possible Bristol Myers (BMY) bid for biotech Gilead Sciences (GILD). Intraday, shares of GILD are slipping back towards unchanged, up 0.60% after gains of about 1.50% on modest volume.

And shares of Silgan Holdings (SLGN), a consumer goods packaging outfit, are up 13.50% after investors, particularly Blackstone Group (BX) who owns a 60% plus stake, applauded news it would pay $4.1B for rival Graham Packaging (GRM). For its part, shares of GRM are up 26.50%.

Finally and in some other sometimes accurate but perhaps easier to define, heat-seeking option markets, Dell (DELL) shares are up 2.35% and seeing some confirmation on heavier-than-normal and lopsided call activity.

Wednesday’s catalyst is appears to be of origins unknown, or umm, maybe Lithuania, where Dell said today it might consider opening support centers. Technically, the price move has gapped shares back above its 50SMA and prior key highs from late October last year and a second attempt at breaking out above those levels.

Most active on the day, traders appear to be net buyers of the April 15 call on volume of 6,600. Priced for $0.22 per contract, open interest of 20,000 and shares having just moved through the strike at $15.10 which could prove problematic for shorts due to heightened negative gamma; closing buyers and speculative longs are likely drivers of that volume.

Also popular and actually the most active contract on the day, the May 16 call has traded 8,600 contracts compared to open interest of 29,000. Priced at $0.26, some of today’s initiating buyers could be rolling out and up from the April 15 call for a few pennies more than even money in order to extend positions.

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