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Wall Street's Friday Lunch Options

By Chris Tyler, Optionetics.com | Fri April 27, 2012 9:10AM PT


“Fed Up” bulls try to hold the line against the latest credit market rattle and weaker-than-forecast GDP. As of 10:45 ET the SP-500 (SPY) is up fractionally by 0.15% and not exactly following through for bears eyeing grizzly flags and assistance from 1400.

It’s Friday and the SP-500 is on pace to log its best gain on a weekly basis in six weeks. As much and with a FTD or follow-through day in hand and hoof, bulls are attempting to optimistically look past fresh risks parceled out from a weaker-than-forecast advance Q1 GDP and downgrade of two notches for Spain’s sovereign debt compliments of credit ratings outfit Standard & Poor’s due to economic and debt concerns .

Stateside and by the numbers, the world’s largest economy saw economic growth fall from the fourth quarter’s 3.0% to just 2.2% for the first quarter and south of forecasts of 2.7%. The weak read on the US GDP came as a result of an unexpected dip in business spending which more than countered a welcome increase in consumer spending for the first three months of 2012.

Friday’s defiant technical reaction in the likes of the SP-500 and an index still faced with the trappings of a bear flag and resistance around the 1400 level could be a result of investors feeling “Fed Up” following Wednesday’s spark from the FOMC’s Bullnanke and his welcomed, “prepared to do more as needed” policy playbook.

In those other intertwined markets of influence, modest profit-taking style pressure of 0.75% in the iShares Bull ETF (AAPL) is making less an impact than otherwise as NASDAQ constituent and retail tech giant Amazon (AMZN) has more than taken up the slack following its top and bottom-line beat and obvious lack of attention paid to its mixed and bearish-bracketing outlook.  

Intraday, shares of AMZN are up a stunningly strong 13% after vaulting out from a bullish up-channel of four months which had been squaring off against bearish 200SMA and Death Cross resistance. Highlights of obvious interest from the report include a $0.21 profit beat on earnings of $0.28 per share and stronger-than-forecast sales growth of 33.8%.

Bulls and bears are also surprisingly dismissing Amazon’s weak Q2 sales forecast of $11.9B - $13.3B vs. $12.83B and wobbly operating situation. The company expects a loose, below views income situation with a loss of ($260M) to possibly a profit of $40.0M and a range representing a drop of -229% to -80% versus the Street’s income forecast of $152.0M   

Reaction on the part of Friday's investors certainly caught AMZN option traders off guard and caused a world of pain for the likes of short volatility / curve strategies such as the rich, but proved cheap in hindsight, ATM Weeklys April straddles and strangles. Friday’s outsized move is a full 50% greater than the 68% or 1SD expectation that shares of AMZN would remain within 9% of Thursday’s levels based on 170% IV and a stock price of 195 detailed in this column yesterday.

Elsewhere, silver (SLV) and gold (GLD) are displaying a modest bit of relative strength as the US Dollar (UUP) finds continued pressure below its 200SMA and likely looser monetary expectations on the part of investors made even more approachable with today’s reports on the US economy and Spain.

And the CBOE Volatility Index ($VIX) is off 3.50% at 16.25% after hitting a three week low of 15.75%. The action is confident but not yet fully complacent with an intraday stretch of 13% below its mean-reverting 10SMA. Friday’s pre “sell in May” behavior embodies investors looking to skim some theta / time decay for portfolios while discounting weekend holding risks and the more old school and dreaded, “Sell in May and Go Away” historical tendencies for the market to disappoint.

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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