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Wall Street's Monday Lunch Options

By Chris Tyler, Optionetics.com | Mon September 17, 2012 10:02AM PT

Technically overbought conditions find modest profit-taking style follow-through Monday. As of 11:35 ET the SP-500 (SPY) is off 0.20% as some complacent, tail turning action looks to remove a bit of excessive bull in the market.

“Don’t fight the Fed” and / or “Don’t fight the trend” are unsurprisingly under a modicum of pressure following last week’s solid 2.0% price spike to fresh intermediate highs in the SP-500 and attached at the hip, fearful-of-missing out sentiment in the VIX ($VIX). Reports and trader chatter on the day are lighter, but more easily-plied by investors looking to peel off a smidgeon of portfolio risk than supportive of bullish technical exploits.

In the spotlight, US regional manufacturing saw a disappointing setback as the Empire Survey fell from -5.9 to -10.4 compared to forecasts of -3.0 and hitting its weakest levels since 2009. Adding to the Empire’s weak results but giving street cred to last week’s FOMC initiative, new orders fell from -5.5 to -14.0 and the employment index slid from 16.5 to 4.3.

To the east, a territory dispute between Japan and China has investors’ attention as trade relations and global commerce could be impacted after the former purchased a handful of islands from a private investor which China claims to have ownership over.

Separately, continued worries over the Fed’s stimulus program fanning inflation and speculative buying in the real estate market has resulted in some local Chinese governments dusting off property price control measures. And further east, India’s central bank did offer bulls some reason to cheer overnight after the country made a surprise 25 bps cut to its reserve ratio.

Across the other pond, anti-austerity protests in Spain by worker unions are causing a bit of investor unease with country yields moving higher towards 5.9% after striking six week lows near 5.5% earlier last week. And Italy’s trade balance showed a surplus of EUR4.49B compared to estimates of EUR1.97B.

In those intertwined markets of influence, the EUR/USD and Eurozone country ETFs(EWP, EWI, GREK and EWG) are mostly flat on either side of Friday’s closing levels as steadfast consolidation patterns attempt to emerge on the price chart after swift multi-day percentage runs.

The US Oil Fund (USO) is also flat on the session. Technically, the oil proxy is carving out an inside doji pattern as it tests its 200SMA for support after Friday’s jump above the key longer-term average for the first time in four months. Continued Middle East tensions and the prospects of increased demand due to the Fed’s stimulus program are being countered by an equal number of bulls bemoaning potentially higher prices caused by inflation.

Overly-complacent behavior in the VIX ($VIX) is seeing a small bit of mean-reversion, neutralizing of the bull. The Fear Gauge is up 1.25% near 14.7% and follows Friday’s test of its August and five year lows and a worrisome 10SMA differential reading of 15.5% which suggested the fear of missing out was investors’ only real concern.

And one commodity of sorts seeing stiffer pricing but due to welcome demand on the part of optimistic investors is the iShares Bull ETF (AAPL). Shares of Apple are up 1.0% to record highs and catalyzed by reports this morning iPhone 5 has set a record with more than 2.0M in the queue in its first day of pre-orders in front of the product’s rollout on September 21.

Elsewhere and in a self-serving move of notice, activist Starboard Value LP announced it now holds a massive 13.1% stake in Office Depot (ODP). The investment fund and sent a letter to the business retailers CEO and board expressing its view of ODP shares being deeply undervalued. Hmm, I wonder if they took the time to purchase the stationary for their letterhead from Office Depot? Intraday, shares are up 6% to 2.62 and extending its monthly gains to nearly 75%.

Finally and in those sometimes accurate heat-seeking option markets, investors are trying to jazz things up in Jazz Pharma (JAZZ) this morning. Shares are up 14% as rumors swirl the company is poised to receive a favorable ruling against privately-held manufacturer Roxane Labs which is trying to market a generic version of Jazz’ Xyrem.

On the option side, weak average trade of just 160 contracts has been replaced by nearly 7,000 contracts and action strong enough to hoist Jazz into the top spot for unusual volume for Russell 2000 constituents. That said, with quoted markets 20% to 40% wide between the bid and offer price, the action is far from unusually good for option traders seeking something other than slippage and certainly not music to our ears. 

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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