Midday Action: November 4
October 20, 2009
The market’s caboose is chasing Tuesday’s select northern train ride in front of the Fed. As of 11:00 ET the SP-500 (SPY) is up 1.45% made possible by a slumping Greenback and reinvigorated, tied at the hip green shoots optimism.
Well, so much for Tuesday’s troublesome breakout of the US Dollar (UUP). With the currency off 0.66% at 22.53 and back in its former range, visions of a more troubling clamp down on easy monetary policy has been a fleeting affair. The optimistic quick change of heart comes despite the final say on the matter still an unknown until shortly after 2:15 ET when the Fed announces its latest policy statement.
In that sometimes heat-seeking option action, bulls appear to be out in force with heavy trading in a “well bid” out-of-money November 23 call contract. On the session nearly 155,000 calls have changed hands versus open interest of 40,000. Priced at $0.13 and implieds near 16%, the activity spearheaded by one offer side 30,000 print—is obviously making a spec play that equity traders may find hard to swallow, if proven presciently correct.
Economic data has also been kind, according to Wednesday’s broader market bulls. Private sector job losses from the ADP (un)Employment Report came in slightly worse than expected. Catching bulls’ collective fancy however, a figure of -203,000 versus estimates of -198,000 is nonetheless continuing to trend in the right direction.
Separately and also finding a bid from bulls is a modest miss for the ISM Services index. Intraday, data came in at 50.6 for October. The figure missed Street views of 51.5, while also dropping below September’s 50.9 but remaining in expansion territory. Net, net reaction to the two reports suggests Wall & Main sees the data as the type that will prevent the Fed from shifting policy, while still providing evidence the economy is on the mend but fragile.
In those sometimes intertwined markets of notice, both Comex Gold (GLD) and Black Gold (USO) are finding bids this morning with gains of 0.55% to 1.05% respectively. A weaker dollar is benefitting both commodities. Additionally, gold is likely finding some follow-through enthusiasm after India’s record purchases announced on Tuesday. For Black Gold’s part, large and unexpected draws in both crude and gas stocks have helped inspire bulls as well.
Entering the lunchtime nosh and market prices have slipped fractionally but remain well-bid in the likes of the SPY and with two hours left until the fate of country is known. Well, not really but it will feel like that in the moments leading up the FOMC Decision if you tune into CNBC. For better or worse and thereafter, traders will then be all eyes, ears and hands over Cisco’s (CSCO) report.
The networking behemoth releases its earnings results after the close. Analysts expect a profit slip of about 25% from the year ago period with earnings of $0.31 per share. Goldman’s pitch for traders willing to play the event is to sell the November 23 put / 25 call strangle based on somewhat rich pricing in the options and what they see as a muted reaction to the report. My self-promoting take on the report sees things a bit differently. To which and for those willing to do the homework, can be found on the Optionetics homepage in the latest Option Watch column.
Chris Tyler
Senior Staff Writer & Options Strategist
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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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