Another opening salvo of well-heeded Greek Tragedy finds bulls challenging Tuesday’s fearful lows. As of 11:15 ET the SP-500 (SPY) is off 0.65% as “Sell in May” tendencies return after a brief bout of “go away” bargain-hunting off fresh corrective lows.
For a second straight day, bulls have found themselves under pressure out-the-gate and emasculating Tuesday’s less-fearful ($VIX) second half bargain-hunters due to a somewhat surprising quick return of investor worry regarding Greece’s political instability and escalating concerns over Spain’s banks.
In the ignominious spotlight, Greece’s void in unified governance has traders increasingly confident, in a bad sort of concerned way; the country will stage a break from the Eurozone. At the same time, Debt PIIGS constituent Spain is making it a one-two punch and undermining sentiment for bulls.
According to reports, Spain’s government will request member banks to ante up an additional $45.0B in their coffers to safeguard against loans to builders. Additionally, the country’s financial institutions are coming under pressure following a cut to Bankia SA by JP Morgan due to expectations of a capital injection and one likely manufactured via dilutive convertible equities.
In sympathy, southern flight-like reactions have infiltrated the iShares MSCI Spain Index ETF (EWP) and financial ADR Banco Santander (STD) with losses of 4% and 5.50%. The thinly-traded Global X FTSE Greece 20 ETF (GREK) is down about 2.50%.
In those other intertwined markets of influence, the EUR/USD is off just 0.18%, but near continuous overnight action Tuesday managed to break the currency pair below the key 1.30 level which was attempting to hold triple bottom support of three months. Technically, today’s price break in the EUR/USD sets up a potential challenge of the 2012 lows from a descending triangle which found resistance in 200SMA bear territory.
Commodities continue to be under relative pressure with silver (SLV), gold (GLD) showing losses of about 0.80% and marginal, new four month lows. The US Oil Fund (USO) is off a similar 0.80% with the added bonus of a surprise larger-than-expected build of 3.65M barrels and ongoing perfect storm pressures out of the Middle East.
For the bulls, one commodity of sorts shaking off gravity is Apple (AAPL) or the affectionately-called iShares Bull ETF. Apple stock opened modestly lower but is now up by about 0.50% as investors continue to support its pre-earnings gap fill as a spot to nibble from technically.
And the VIX ($VIX) has established a fresh high to mirror yesterday’s undercut corrective low in the SP-500. Highs of 21.59% have signaled a second session of excessive short-term fear based on the sentiment gauge’s stretched 21% differential relative to its mean-reverting 10SMA.
With the SP-500 cash index holding Tuesday’s corrective lows, the combined action in the VIX and broader market lend themselves to potentially overdone value-based, bargain-hunting efforts for bulls to graze on. Once more though, don’t dust off Edwards & Magee, as you may find a bear flag on that price chart and some selling in May; not yet ready to go away.
On the corporate confessional side, Dow constituent and entertainment / leisure giant Disney (DIS) came up with a magical report for shareholders. The stock is up 2.10% after delivering a three cent profit beat on earnings of $0.58 per share, while sales also bested views with an increase of 6.1% year-over-year.
Finally and in those sometimes accurate heat-seeking option markets, shares of SodaStream (SODA) have popped a bubbly 25% after the niche do-it-yourself carbonated beverage gadget outfit produced a bullish hat trick of a six cent profit beat, stronger-than-expected sales growth of 50.3% and upside, above views FY12 revenue and income guidance.
SodaStream’s report certainly looked to surprise a few bears with its whopping 85% short interest ratio. More than a few option traders got the heave-ho as well. Option traders were spied playing rather heavily with puts by a 2-to-1 margin yesterday in a very well-bid May contract sporting ATM implieds in the mid-150s and now crushed into the high 60s to low 70s.
Admittedly, the net result by SodaStream and today’s trader reaction, certainly took our own bearish analysis from last week’s Trader’s Radar, out to pasture. That said, while some Green Mountain (GMCR) like downside follow-through wasn’t meant to be, shares of SODA and its fizzing premiums did offer opportunities to adjust into very low and limited risk position the in front of the report.
Who did well on the option side? Naked long call buyers by and large did well, as did bullish delta premium sellers focused on strategies like the targeted purchase. And just squeaking by, traders positioned long curve with strategies like the long straddle are up about 15%. That amounts to roughly $90 per spread based on last night’s close of $6.15 or $615 in dollar risk.
The reason for the fairly smallish gain is due to rich option pricing leading into the event which amounted to an expected move of about 24% into next Friday’s expiration. While the May contract still has several days until expiration, the combination of today’s nearly spot-on percent reaction coupled with a hard IV crush has taken any real bubbly and smiley faces out of the long-curve position.
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.
