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Bulls continue to “drop and not shop” on increased financial and consumer anxieties in Thursday’s first half. As of 10:50 ET the “SPYder” (SPY) and “Cubes” (QQQQ) are off .55% to .65% on mixed consolidation-style maneuverings of the bull.

Headlining the out-the-gate worry machine for bulls and for those now less-gruff bears, last night shares of Dow component AIG (AIG) swung to a worse-than-feared $5.35B quarterly loss. Compliments of writedowns and dollar-dings or “impairments on mortgage-related exposures” per MarketWatch, the report set the early tone in earnest in Wednesday’s after hours. Tone setting can still be found as “Buy the News” reactions have been M.I.A. as shares of AIG plunge by roughly 5 points near 24.

For other bulls, a fresher morning brew from fellow Dow peer Wal-Mart (WMT) and overall mixed-to-mostly disappointing (TGT, ANF, SHLD) monthly same-store sales have been a wake-up call. For its part, the world’s largest discount retailer announced comparable same-store sales growth rose by 3.0% but below views of 3.4%.

Slow growth is better than no growth to be sure. But at Wal-Mart, as the weakness is occurring at an ever-popular “strapped for cash” venue and as important, a stock the Herd on The Street has built into one of the market’s best YTD gainers; dropping and not shopping has been the order of the day. WMT is off 2.40 at 58.34.

On the economic side, weekly claims rising by 7K to a six-year high of 455K isn’t helping market bulls. Analysts had expected a decline to 420K following last week’s surge. Separately, announcements by the Bank of England and the ECB to leave rates unchanged came as no surprise to traders. However, a “no bias” statement on future rate moves from ECB President Trichet look to be weighing on market sentiment as traders grasp with the possibility of still-deteriorating economic conditions worldwide.

Not helping sentiment or prices, Freddie (FRE) continues to sing something other than “Relax” for investors. Following Wednesday’s 80% dividend cut and $821M loss, the latest has the GSE finding its capital position in the red by $1.2B per GAAP. For investors that means were the mortgage concern to sell its assets and pay down its debt, those folks would be left holding the bag. Intraday, FRE is off .40 at 6.09.

Elsewhere, from woes at FRE we can move onto chills and spills at Reddy Ice (FRZ). It appears that with the commodity complex having been so hot in 2008, its influence filtered into the darker reaches of that universe; or at least the ice machine down the hall and to the left. The Feds are hot, ironically enough, on the trail of an alleged criminal price-fixing conspiracy within the $1.8B packaged ice market. Apparently some of that cool cash was realized by jacking up prices and strong-arming the competition. Privately-held Home City Ice and publicly-traded FRZ are amongst two industry leaders having sit-downs with officials, while shares of FRZ have melted by 2.39 to 11.

In “optionabull” action, the semiconductor sector (SMH) is spearheading for bulls. The lagging of late chip space has taken over the technical reigns for its larger and leading sibling, the NASDAQ100. In Thursday’s first-half, Intel (INTC) is leading the charge as shares tack on a healthy 3.50% to 23.58 on no company or industry news of notice. That being said, chip component Marvell Tech (MRVL) is finding some very heavy across-the-board call buying activity as recent takeover chatter hits trading desks once again.

In today’s story, rumors of a Texas-for-Marvell deal are making the rounds. Intraday and in the top spot, nearly 17,500 slightly ITM August 15 calls have traded. A current market price of .75 per contract with shares at 15.40 represents implieds near 55%. The second heaviest volume is in the September 17.50 calls, with a bit more than 9,200 trading on implieds of 55% and a price tag of .50 per call.

The action has also spawned heavy interest out and into November 15, 17.50 and even 20 strike calls with a total of 19,000 plus contracts combined having traded on implieds ranging from 48% to 51%. Overall buy side demand has resulted in implieds popping by roughly 8% to 20% on a percentage basis. The net result is premiums are changing hands on fair to high theoretical valuations. And that of course, depends heavily on a trader’s call selection, as well as their determination of what constitutes fair value and risk versus reward.    

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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