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Tuesday was one of those beautiful days for bulls… well, some bulls, that is. After three days of raising doubts with lower prices and a bit of distribution, it was off to the races for markets like the S&P500 (SPY) and NASDAQ100 (QQQQ). In total, with the likes of the “SPYder” up a solid 2.70% on heavier volume following a three-day pullback, the action appears to have solidified the market’s somewhat suspect intermediate-based FTD from July 29.

A trio of catalysts provided the platform for bulls to spring forward from. For one, commodities continued their price dump into the technical commode. As the percentage swoon in most all related products (USO, GLD, SLV, DBA, MOO, XLB) appears tied to flat-footed hedgies and not a scary harbinger of economic doom and gloom, the bulls had much to cheer about on Tuesday, in terms of potential price relief at the pump and elsewhere.

Secondly, financial spearheading from reports / analyst actions out of Societe Generale, Lehman (LEH) and AIG (AIG) also acted as a considerable prop in reigniting the market’s nascent bull. And lastly, investors caught wagering in front of FOMC report for a more friendly Fed, weren’t disappointed….so, they tell us. Entering Wednesday, with prices squarely back where they were at the end of July, the month-plus consolidation in conjunction with a neutral VIX and mid-July extremes is determined to bode well for shorter-term swing traders.

Figure 1: Blackrock (BLK) Weekly

Given the overall bullish circumstances, one growth-oriented stock for option traders to watch with a bovine eye might be Blackrock (BLK). The highly-ranked investment manager, per the fact finders at IBD, has been a standout amongst both financials and the broader market during 2008. Secondly and as evidenced by the weekly charting tea leaves shown above, that strength looks poised for higher prices in the days and weeks ahead.

Blackrock was initially discussed in last week’s Hotshots and subsequently put on the Growth Stock report. Since then, a bit more consolidation work gave way to a higher volume breakout of its weekly handle in Tuesday’s session. Purists might see the total shares traded on the day as being a bit light relative to its average daily volume. Possibly. But, that figure is obscured by four very heavy sessions of activity last month near its earnings release and what winded up being a bullish catalyst.

Positioning in BLK’s options does require a bit of extra due diligence on the part of traders. An average contract count of 920 isn’t too shabby. In fact, in many cases that level of volume would provide decent liquidity. However, with BLK’s high-priced and fairly volatile behavior, the combination does afford the MM’s the liberty of keeping the spreads wider than many traders feel comfortable with.

Figure 2: Blackrock Implieds

Implieds have come down nicely since reporting last month, with the theoretical edge appearing to be from the buy or long curvature side. However, looking at Figure 2 and the take-away impression is those prices could reach the high 30’s to 40% IV before finding a more secure floor. In saying that, any decisions that might be made are likely best-approached with spread limit orders and the realization that watching from the sidelines is a position as well. 


Chris Tyler
Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual. 

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