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Wall Street's Thursday Lunch Options

By Chris Tyler, Optionetics.com | Thu March 22, 2012 9:36AM PT


Manufactured disappointments from across both ponds finds bulls playing the game of March Madness Thursday. As of 11:30 ET the SP-500 (SPY) is off 0.80% and a zone defense play above 1400; now a broken hoop dream.

Disappointing PMI reports out of China and the Eurozone hinting at further manufacturing contraction has found bulls losing their aggressive game of holding the SP-500 above the 1400 level. In recent days confidently complacent investor sentiment has kept the game clock ticking into overtime of nearly six months from the October lows, but some March Madness finally appears to be entering its own.

As for those numbers of discontent, China’s HSBC “flash” PMI for March dipped a bit further below the 50 expansion / contraction line with a reading of 48.1 compared to February’s 49.6 as diminished domestic demand and weak employment, its lowest in three years, weighed on manufacturers.

Separately, a preliminary stab at March data for the Markit Eurozone PMI produced a slip to 48.7 from February’s 49.3. In striking a three-month low, continued weakness in manufacturing activity has forced investors to once more revisit the “r” word known as recession.

Stateside and on the officially-sanctioned economic front, weekly claims data which bested estimates and hit a fresh multi-year low has failed to boost a bull already positioned for profit-taking. For the week ended March 16, applicants for new jobless benefits fell 5,000 to 348,000 versus forecasts of 355,000. Continuing claims also dipped by 100,000 to 3.35M.

In those intertwined markets of influence, Apple (AAPL) is continuing to put up its own good fight in trading flat with a zone defense formation holding above $600 a share.

Other commodity plays are less fortunate as demand for iPads and the likes have been replaced by a different and bearish sort of demand concerns, as well as an unsurprising bid in the Greenback (UUP). Gold (GLD) is off 0.50%, while silver (SLV) and Black Gold (USO) are down a similar 1.60%; though the oil proxy continues to hold weekly technical support for bulls.

Treasuries as represented by the 20-Yr (TLT) are up only fractionally by 0.30% but continue to confirm a five month double bottom pattern as prices jump narrowly above 200SMA resistance for the first time in a week.

And the VIX ($VIX) is flashing an ever-slight hint of investor fear today as it trades up 8% near 16.25%. The bid has the notorious sentiment gauge roughly 6% above its 10SMA while attempting a consolidation breakout from five-year confident, and at times, complacent lows.

On the corporate side, economic barometer, other than Apple, FedEx (FDX), produced a stronger-than-expected profit beat of $0.31 on earnings of $1.65 per share. Reaction to the report has been less terrific as FDX shares are under pressure by an outsized and “handle-breaking” 3.90% on general market sympathy and an “underwhelming forecast” according to the likes of Briefing.com.

Bulls in FedEx could be said to be turning a blind eye to the air and freight operator’s prospects as management expects the third quarter’s “solid performance” to continue into the fourth quarter. However, caveated by the assumption of steady fuel prices and moderate global economic growth; given Thursday’s bearish theme focused on disappointing economic data, that’s a difficult package to deliver.

Finally, in those sometimes accurate heat-seeking option markets, bulls are taking aim at bears in gun manufacturer Smith & Wesson (SWHC) today from a short-base breakout with shares up nearly 14% following its well-received earnings report. Call activity is sympathetic towards the move in the underlying with heavy opening volume of 1,000 contracts trading in the still slightly out-of-the money April 8 call and about 700 in the June 8 call.

As for the near-term contract, priced at $0.35 with shares at $7.90, a long call would require shares to fire higher by another 11% to double at expiration. With 29 calendar days left in April and just under the 30 day theta threshold where decay risk on such contracts grows; the wager may seem like a longshot rather than being an accurate, still-to-be-determined hit.

 

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

 


Recent articles by Chris Tyler, Optionetics.com


September 21, 2012  -  Wall Street's Friday Lunch Options
September 21, 2012  -  Hot Shots: All Aboard or Train Wreck?
September 20, 2012  -  Wall Street's Thursday Lunch Options
September 19, 2012  -  The Expected Move: Bed Bath & Beyond Earnings
September 19, 2012  -  Wall Street's Wednesday Lunch Options


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