Following a surprise breakout to marginal fresh highs, February’s bulls and bears are mostly and unsurprisingly, expiring quietly. As of 11:05 ET the SP-500 (SPY) is flat on the session in a lot of "this and that" option-related machinations, typical of standard operating protocol for a run-of-the mill, less-than-exciting third Friday.
Background but somewhat muffled Iranian saber rattling, worries of Greece not being on the up and up with its austerity pledge and mixed to mostly ho-hum economic data look to be countering bulls (and bears)caught up in the immediate technical chase to test the SP-500’s May highs all but less than 1% above the current price action.
On the officially-sanctioned economic side and per government bean counters, total consumer prices rose by a milder-than-forecast 0.2% compared to estimates of 0.3%. Axing the little stuff like beans and energy, prices also rose by 0.2% but came in hotter than views of 0.1%.
Separately and intraday, leading indicators for January came in a tad light in showing an increase of 0.4% versus estimates of 0.5%.
In those intertwined markets of influence, shares of Apple (AAPL) have cooled off from out-the-gate gains which extended shares up by more than 1% to a flattish position and action, in no small part, which has helped cut down the ambitions of bulls in the broader market.
The EUR/USD has also reversed from a bit of overnight follow-through off a test of key 1.30 support on Thursday. Intraday, the currency pair is up 0.16% at 1.315.
Black Gold as represented, sometimes feebly we might add, by the US Oil Fund (USO) is up 0.65% and helping add to its strongest weekly gains this year. Fore-mentioned geopolitical concerns between Iran and the West are one support for the commodities relative strength.
A second bullish prop in oil, but one slightly lost on Friday’s equity crowd are optimistic expectations Greece’s latest budget cuts will prompt EU officials to sign off on the bailout deal on Monday.
Gold (GLD) and Silver (SLV) are interestingly enough, under pressure by 0.55% and 1.05% respectively. Technically, three weeks of lateral consolidation take on a bearish-looking lower, low weekly chart pattern which might serve as a resistance entry for grizzly-oriented shorts.
And the VIX ($VIX) is off 5.50% at 18.25%. Back below 20%, the sentiment gauge is back in the more historically comfy high teens associated with healthy market climates. In saying that and as we’ve said in recent days, rather than buying it for what it might suggest, we’d be inclined to buy that type of action for its use as protection in the event testing of prior highs in the majors goes less-than-well after an outsized run of 12 weeks from some unseemly lows 13 weeks ago.
On the corporate front, solar stocks (TAN, FSLR, TSL and LDK) are flaring higher from deep multi-day pullback patterns within their mostly nascent uptrends which began back in late November / early December. Imbuing bulls into action this morning are a pair of reports from SunPower (SPWR) and Suntech Power (STP).
By the numbers, SunPower is trading higher by 22% after delivering a surprise profit of $0.16 per share compared to a loss of ($0.11) and issuing bullishly-bracketing sales guidance for FY12. Shares of STP are up 14% after the outfit preannounced for its fourth quarter. The company sees sales of $610M - $630M compared to less hot forecasts of $558M.
Finally and in those sometimes accurate heat-seeking option markets, Baidu (BIDU) is seeing the combined effects of a volatility crush from 185% and heavy theta risk; siphon value out the spread and trump a “small” bit of intraday movement away from the strike of last night’s ATM Feb 140 straddle.
Shares of BIDU are off about 3.25% near 137 despite the China-based internet search outfit beating on both its top and bottom-line, issuing bullishly-bracketing revenue growth and seeing a couple brokers lift price targets to a range of $200 - $215 a share.
In Thursday’s WSLO and in our closing comments, we noted option traders were pricing in an estimated move suggesting BIDU had a 68% chance of remaining within 6% to 9.5% of its price near 141. The range was based on straddle / strangle pricing and a standard deviation calculation on implied volatility.
Along with a price of hefty dollar price tag of $10.80 for the February 140 straddle now trading for around $3.00 per spread, we voiced our opinion of the earnings pure play also being the most risky way to play the event and the use of other strategies as advisable. It turns out our own brand of write-and-right, albeit vague, was of a bit more practical use than the crowd’s less-than-accurate expectations which overshot Friday’s reality by a wide margin.
Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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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.
