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Morning Update

Yesterday’ trading session was extremely whippy as comments and rumors out of Capital Hill pushed markets first deep into the red and then back to unchanged on the day on extremely light volumes. Some of the most interesting price action was in the VIX. The index traded to nearly 21 when stocks were at their low, and the futures went into slight backwardation. Backwardation is when the near month future is more expensive than the back month and signals extreme market anxiety. However as soon as news broke that the House would reconvene Sunday night in Washington stocks took off and the VIX sold off to close on the lows of the day. In these low volume markets it does not take much to get major market moves and reversals like we saw yesterday. Today Obama is scheduled to meet with Congressional leaders and I expect the market to hang on their every word.

Yesterday’s retails sales data was weaker than expected, which prompted a selloff in retail stocks. However one option trader was buyi…

Morning Update

This morning US s5tock futures are indicating a higher open on the back of better than expected jobless claims and a lower dollar. However, the market’s main interest will continue to be the fiscal cliff, with rumors driving the market’s direction. The broad market has shown some resilience so far in cliff negotiations while the VIX has been strongly bid. This implies traders are not rushing to sell stocks, but rather buy option protection for their positions. Geithner said yesterday that the US would “rise above” the debt ceiling on Dec. 31st though the Treasury could use emergency measures to delay this for another two months. If the tax hikes become effective January 1st though, this 2 moth cushion could last even longer. This could be why there appears to be little sense of urgency in Congress and it looks like the odds of getting a deal done by year end are minimal now.

With many traders still on vacation yesterday volumes were generally low. However one stock that caught many tr…

Morning Update

Overnight volumes have been expected light ahead of the Christmas holiday. S&P 500 futures traded down to test Friday’s lows but have since bounced and are down small from Friday’s close. This move has closely tracked trading in the Yen and Euro, with the Yen and Dollar hitting highs as the S&p hit lows. Currency markets should be a good barometer of risk sentiment this week as equities see low volume. Look for the S&P 500 to follow the EUR/USD pair and the USD/JPY pair. When markets reopen on Wednesday morning expect the focus to be on the fiscal cliff again, with Obama’s “Plan B” in the spotlight. The bill Obama is expected to try and pass will likely extend tax cuts for people making less than $250K, increasing capital gains and dividend taxes to 20% and extending unemployment spending through 2013.

On Friday markets around the world tumbled as a bout of risk aversion, driven by Speaker Boehner’s failure to get enough votes to pass “Plan B”, swept markets. One stock tha…

Morning Update

Last night Speaker Boehner scraped the House’s vote on “Plan B” because there were not enough Republican votes to pass it. This sent stocks around the world tumbling and a heavy dose of risk aversion in currency markets. S&P 500 futures lost about 50 points in a matter of minutes but has since stabilized higher and are down 22 ahead of the open. The US dollar and Yen as also stronger this morning as trader s move into safe haven assets. The VIX is the real mover on the news and the Jan future is up over 7%. Speaker Boehner is expected to speak at 10 EST and could give the market a clue as to his next move. The good news out of the Plan B failure is that everyone, especially the President, knows which Republicans will not compromise on tax increases, whether Boehner wants them or not. Boehner will have to tell Obama that if he wants a bill he will have to rally Democrats to meet the Republics that are willing to compromise half way. However, if Obama cannot get Democrats to comp…

Morning Update

Ahead of the US open global risk sentiment appears strong. Asian stock indices were up, led by the Nikkei (+2.39%) on reports that LDP and its coalition will pass a new US $119B stimulus package to spur on the Japanese economy. News out of Germany was also positive this morning, with IFO business confidence rising month/month. Housing data in the US was positive this morning, lead by strong gains in the South that made up for weakness in the northeast. The fiscal cliff will continue to have the most sway over US markets. The House is expected to pass Boehner’s “Plan B” as early as tomorrow despite Reid’s statement that it will not pass the Senate. This is seen as a way for Republicans to shift blame for going off the cliff onto the Democrats. After strong gains the past few days I would not be surprised to see some profit taking today or tomorrow unless real progress on a deal is announced.

This week the Dow has put in back to back triple digit gains, led by Bank of America. This sto…

Morning Update

Yesterday the market closed on the highs of the day in a follow through move from Friday’s reversal. The eMini S&P 500 futures punched through the technically significant 1420 level with relative ease, and it looks like momentum is on the bulls side for the near term. However, the market will continue to be driven by every word out of Washington on the fiscal cliff. The latest developments in the negotiations seem to show a deal is getting closer, but we will believe it when we see it. Boehner is due to meet with House Republicans at 9 EST and a press conference is scheduled shortly after.

Apple, the world’s most valuable company, has seen some huge intraday ranges the last few days. This has sent historical, or realized, 20-day volatility near its 2012 highs and implied volatility near levels typically only seen just before an earnings announcement. This, combined with expectations of light trading through the holiday season, has many option traders selling out of the money AAPL …

Morning Update

This week all eyes will again be on the fiscal cliff negotiations in Washington, with comments from Congress driving the market. Over the weekend The Hill reported that Boehner offered to increase the debt limit for one year though Boehner said shortly after “Any increase in the debt limit will require a greater amount in spending cuts” which seems to negate any progress that had been made and puts the negotiations back at square one. Last Thursday and Friday the spot VIX index rose, and the Dec. contract, which expires Wednesday, rose in lockstep with it. However, the Jan. contract actually traded down on Friday, which suggests the market is only fearful in the near term and predicts the VIX to fall into Jan. expiration. The below average amount of contango between the Dec. and Jan. contracts is somewhat of a bearish sign for this week, and could mean the market sell off if comments out of Washington continue to disappoint.

As the fiscal cliff nears the market is beginning to wonder…

Morning Update

Overnight risk sentiment in Asia and Europe was buoyed by a strong PMI out of China. Japanese data was weaker than expected, confirming an accelerating recession in the country. Then Yen has been strong though after hitting major support levels against the Australian and US dollars and ahead of Japanese elections this weekend. This morning the US CPI posted its biggest decline in 6 months but industrial production topped even the highest estimates. With congress at home for the weekend Fiscal Cliff headlines, which control the market right now, are likely to be muted today, leaving only the market technical to fuel trading. The S&P 500 futures are currently at their 50 day moving average, which should provide some support.If Fiscal Cliff fears to surface, I would expect to see the Jan. VIX contract, which has been under performing the Dec contact, catch a bid.

Yesterday MetLife issued a warning to investors that next year’s earnings could come in less than analysts are expecting …

Morning Update

Yesterday’s Fed meeting fell largely in line with market expectations with the announcement that the Fed would make up for the end of Operation Twist with $45B in outright asset purchases on the long end of the curve. The biggest surprise was that the Fed said they will keep the Fed Funds rate at current levels until unemployment is at 6.5%. During the preconference Bernanke elaborated that this is not a hard and fast target, but more of a guideline. Stocks gave up their gains on this news to finish in the red along with bonds on the day. The big mover overnight has been gold, which is down 1.25% at the moment despite the bullish fundamentals from the Fed. The sell-off began at the open of Asian trading and was likely profit taking after the metal’s run up into the announcement. We remain long term bullish on gold and expect the metal to appreciate in lock step with the size of the Fed’s expanding balance sheet.

Yesterday the market got its first look at what RIM’s BB10 is likely to …

Morning Update

Yesterday’s Fed meeting fell largely in line with market expectations with the announcement that the Fed would make up for the end of Operation Twist with $45B in outright asset purchases on the long end of the curve. The biggest surprise was that the Fed said they will keep the Fed Funds rate at current levels until unemployment is at 6.5%. During the preconference Bernanke elaborated that this is not a hard and fast target, but more of a guideline. Stocks gave up their gains on this news to finish in the red along with bonds on the day. The big mover overnight has been gold, which is down 1.25% at the moment despite the bullish fundamentals from the Fed. The sell-off began at the open of Asian trading and was likely profit taking after the metal’s run up into the announcement. We remain long term bullish on gold and expect the metal to appreciate in lock step with the size of the Fed’s expanding balance sheet.

Yesterday the market got its first look at what RIM’s BB10 is likely to …

Morning Update

Yesterday the market closed near the highs of the day with the VIX futures at the lows. When Senator Reid came on TV to say that he did not expect to see a fiscal cliff deal before Christmas the S&P sold off slow and steady, but VIX did not catch a bid. The market then recovered into the close, which suggests traders do not believe Reid and are not worried. Today trader’s attentions will be on the FOMC meeting, which is expected to result in the announcement of additional asset purchases to make up for the end of Operation Twist. Gold is higher this morning and the dollar weaker ahead of the meeting.

AIG has had a busy week in the news, first announcing the sale of most of its International Lease Finance Corporation (ILFC) to the New China Trust Co., and then the government’s announcement that they will sell their remaining stake AIG. This has sent shares up 3.3% on the week and 5.7% yesterday. The headlines also created a flurry of option activity on the stock as traders try to p…

Morning Update

Yesterday was a relatively quiet US trading session that ended with stocks up and the VIX up. However, the December future was unchanged and the Jan. future was down 0.20, which brought the December future in line with the spot VIX. The January future is the one to watch for fiscal cliff fears, and the selloff suggests a lack of fear in the market. This morning the S&P futures are up with the VIX futures down, mostly on positive news out of the Eurozone overnight. The S&P 500 futures are currently above the 1420 level which has been a resistance level. I would expect a test of the level in the regular trading hours and will be looking to see if it is able to hold as support. Risk sentiment has been fueled by stronger than expected Spanish and Italian t-bill auctions, and the German ZEW survey posted its strongest reading since May 2012. This has the Euro higher against major currencies,a nd dollar weakness will be supportive today. The Swiss Franc is notably weak this morning…

Morning Update

Overnight Japan reported weaker than expected GDP, which means that the country is officially in recession. The contraction is due to, in part, slowing exports to China, which confirms a slowdown there as well. In Europe Italian PM Mario Monti lost support of former PM Berlisconi’s party in parliament. Monti is likely to quit before the end of 2013, which has European shares down and Italian bond yields trading at their widest spread to German Bunds in 4 months. Last week a weak Spanish bond auction sent Spanish bond yields higher as well, showing waning investor enthusiasm for Europe’s weakest links despite the actions of the ECB. In the US Obama and Boehner met in person, though there are no reports of what was discussed. In this case I see no news as good news. As long as they are not publicly complaining about a lack of bi-partisan cooperation I believe they are making progress. Reports also surfaced that republicans would be likely to support higher taxes on the wealthiest Ameri…

Morning Update

This morning the NFP report for November came in well above expectations at +146K jobs which brought the unemployment rate down to 7.7%. This is the lowest unemployment rate seen in 4 years and is the result of 350,000 people leaving the labor force. The BLS said that there were no discernible impacts from Hurricane Sandy, contrary to expectations. Overall this appears to be a bullish report and contracts the poor ISM manufacturing, PPI, and durable goods orders for the month. The market is higher on the news but we expect traders to remain cautious about getting overly long before a fiscal cliff deal is announced.

Yesterday Nokia saw some of the highest call option trading volume of the whole market. The biggest trade of the day was the purchase of 22,260 January 7 calls for $0.38 with the stock at 3.69. This is a bullish bet that the stock will be above 7.38, a 100% gain, over the next 42 days.

Nokia’s stock has been beaten down in 2012 as the company continues to lose market share…

Morning Update

This morning jobless claims were reported at 370K, which beat consensus expectations of 380K. This is the third straight week of declines in claims since the spike caused by Hurricane Sandy and suggests the effects of the storm are wearing off. In Europe strong manufacturing data out of Germany and strong risk sentiment in Asia sent European shares higher in early trading, but the major indices are since well off their highs. The Euro is lower and the Yen higher, suggesting traders are positioning themselves into risk-off positions. Spanish and Italian debt has had a rough day, with Spanish 2yr spreads 38bps wider on the week. Swiss 2yr rates hit 3 month lows this morning, also confirming the risk off sentiment. Today I would not expect to see too much action in US equity markets as traders sit tight ahead of tomorrow’s jobs numbers. The market is looking for payrolls to increase by 80,000 versus 171,000 last month, and for the unemployment rate to increase 0.1% to 8.0%.

One of the be…

Unusual Options Activity

Yesterday Netflix shares jumped 14% on news that Disney has struck a deal with the company to stream Disney, Pixar, and Marvel movies beginning in 2016. This is the first time a major Hollywood film studio has chosen web streaming over premium cable channels, and represents a major step forward for the Netflix business model. The stock saw above average option trading volume on the news, with most of the volume concentrated in call trading. One trader bought 400 weekly 90 calls for $1.39 with NFLX at 86.45. This is a bullish bet that will profit if NFLX is above 91.39 or 5.7% higher, at the close on Friday.

This trade is a speculative bet that near term momentum will continue to drive the stock upwards over the coming days. The market is eagerly awaiting disclosure of the financial terms of the deal, which could send Netflix shares sharply up or down depending on the news. Analysts believe Disney’s current deal with Starz is worth about $250 million per year and that Netflix could be…

Morning Update

Yesterday markets sold off on an exceptionally poor ISM manufacturing number which was reported at 49.5. Readings below 50 indicate contracting business activity. This comes on the back of poor durables goods orders and PPI last week, all of which suggest the US is headed for a recession. However, at the moment traders are preoccupied with budget negotiations going on in DC. On Friday traders will be watching the November unemployment report, though the reading could be distorted by Hurricane Sandy. Next month’s ISM manufacturing, unemployment, PPI, and durable goods orders will be extremely important because they will either confirm or deny the slowdown seen in the most recent data.

Yesterday fiscal cliff worries were at the forefront of traders’ minds, which sent the S&P 500 down 0.5% on the day. Should the US go off the cliff, there is a high probability of a recession in the near future. This has option traders playing defense ahead of the New Year by selling out of the money…

Morning Update

On Friday the Brazilian statistics agency, IBGE, reported that their economy expanded just 0.6% in the third quarter, which was well below expectations. This sent Brazilian stocks tumbling, Petroleo Brasileiro among them. PBR has had a rough 2012: the stock is down 27.7% year to date and currently trading near its 52-week low. However, now the stock is getting cheap enough to entice Brazilian bulls to take a shot on the stock. On Friday one trader bought 8500 April 20 calls for $0.72 with the stock at 18.05. This is a bullish bet that will profit if PBR is above 20.72, or 15% higher, at expiration.

Brazilian growth is highly dependent on growth in China, is one of their largest trade partners. Brazilian stocks have been sold for the past few weeks as data out of China showed a slowing economy and analysts downgraded Brazilian GDP expectations for 2012 and 2013. However, this morning data out of China was upbeat; the HSBC’s Purchasing Manager’s Index rose to 50.5 from 49.5 in October. …

Morning Update

Yesterday US GDP data showed that the economy grew at its fasted pace since late 2011, though it remains uncertain whether this pace will continue to year end as a result of hurricane Sandy and the Fiscal Cliff. Odds of jumping off the fiscal cliff seemed to increase yesterday as President revealed that his opening demands for a deal are $1.6 trillion in tax increases, $50 billion in infrastructure spending, and the power to raise the debt limit without congressional approval. Reuters reported that the proposal was “greeted with laughter” from congressional Republican leaders and it appears it is a step back rather than a step forward in the negotiations.

On Tuesday the Durable Goods report for October showed orders were unchanged, mainly due to weakness in auto sales, airplanes, and defense. However, yesterday Ford announced that it is on track to have its best Hybrid sales month ever and increase its electrified car market share to 11%, a 5 fold increase year over year. The primary…

Bullish GMCR Options Activity

After the close on Tuesday Green Mountain Coffee Roasters reported better than expected fourth quarter earnings that sent the stock up 27% yesterday. One trader decided to play the rise in the stock with options, and bought 24,000 Dec. 33 calls for $3.85 with the stock at 35.89. This is a bullish bet that the stock will appreciate by at least 2.7% over the next 22 days.

This bullishness comes after GMCR reported EPS of $0.64 versus expectations of $0.48, net sales increased 33% year over year, and next year’s guidance was raised. GMCR has been beaten down by the market and is currently 68% off its all-time high from 2011. The stock’s downfall began in 2011 when David Einhorn made a strong bearish case for the stock at an investment conference. His thesis for shorting the stock was the K-Cups are more expensive than buying traditional coffee grounds and wouldn’t catch on with consumers making the company’s growth unsustainable and the stock overvalued. Then in April of this year Starbu…

Bullish Options Activity in GLD

Today one option trader is taking advantage of gold’s decline by buying upside calls. The biggest trade of the day is the purchase of 7,250 GLD January 2014 calls for $4.35. This is a bullish trade that profits if GLD is above 204.35 at January 2014 expiration, which is 415 days away and a 23% move higher. The 200 level in GLD corresponds to a spot gold price of about $2100/oz.

Gold fundamentals remain strong going into 2013, and while I don’t expect gold to trade to $2,100/oz in the coming year, I do expect gold to appreciate significantly. This is based on simple supply and demand. The supply side of gold is not expected to increase dramatically next year, but demand should continue to grow. The two primary sources of gold demand are central banks and exchange traded funds. In 2011 net central bank purchases exceeded 455 tonnes, the largest since 1964. This year the World Gold Council has reported that net central bank purchases are about 20% of global supply. Meanwhile, demand for…

Morning Update

Overnight another Greek bailout was agreed to, which has sent the Euro lower against the dollar. In the past these events have been a “buy the rumor, sell the news” events, so today’s price action is no surprise. And as with the past Greek bailouts, analysts are already saying that it is just kicking the can down the road without a real solution. The main economic news out of the US this morning is the durable goods numbers, which came in ahead of expectations, though expectations were exceptionally low. The October number was unchanged following a 9.2% increase in September and massive 13.1% drop in August. The chart from the Federal Reserve, shows capital goods orders with formal US recessions highlighted in grey. If the recent drop in durable goods orders continues, the trend shows that the US is likely headed for a recession.

One of the sector’s hardest hit since President Obama’s reelection has been the Utilities. The SPDR Select Sector Utilities ETF, XLU, is down 4.8% versus a …

Morning Update

Last week the market rose on optimism that there will be resolutions to the debt crisis in Europe, the fiscal cliff in the US, and conflict in Israel. However, no real solutions were actually found to any of those problems last week. Therefore, we remain cautiously long in this market and are watching the price action in the S&P closely. There appears to be major headline risk in this market, and it will only take one comment from a congressman about not compromising to send this market lower. The focus this week will be on congress, durable goods orders, and GDP and the levels we are watching in the S&P 500 futures are support at 1390 and resistance at the 100-day mobbing average at 1405.

One stock that saw a surge of interest and high trading volume during Friday’s abbreviated trading session was RIM. Shares closed up over 13% on the day following an analyst upgrade and upward price target revision to $15. On trader bought 11,055 March 18 calls for $0.47 with the stock at …

Morning Update

This morning jobless claims were released due to the holiday and were in line with expectations at 410K. Last week’s claims were revised up from 439K to 451K. The Euro was volatile overnight, first falling on news that no agreement over Greek aid disbursement have been reached. However since then the Euro has traded all the way back and is now up on the day. Today’s US trading session is likely to see light volume ahead of the holiday.

Yesterday I noticed unusual options activity in Halliburton. One trader bought 3827 December 30 puts for $0.54 with the stock at 31.35. This is a bearish bet that will profit if HAL is below 29.46 (6% lower) at December expiration in 30 days. Halliburton is a high beta stock that was down over 20% from its September highs before rebounding a few percent with the broad market this week. This trader is taking advantage of this bounce to get bearish exposure to the stock, and also take advantage relatively low implied volatility. Thirty day implied volati…

Morning Update

Last night moments after the US close Moodys downgraded French debt from Aaa to Aa1. The biggest reaction to this was in the EUR/USD rate, which slipped from 18.15 to 1.2765 in minutes. However, the Euro completely recovered as soon as European markets opened for the day and is now sitting at 1.2800. European markets are basically unchanged this morning, along with US stock futures. Housing starts were reported at 0.894M this morning, beating consensus estimates of 0.836M.

Yesterday Wall Street was in rally mode as traders snapped up “risk-on” positions. We noticed unusual options activity in EWZ, the iShares MSCI Brazil Index. One trader bought 40,000 March 53/55 call spreads for $0.77 and also sold 20,000 March 48 puts for $1.54 with the ETF at 51.68. This is a bullish bet that will profit if EWZ is above 55 at March expiration. That would require a 6.4% move over the next 115 days. If EWZ sells off and is below 48 at expiration, the trader will be put to 2 million shares there. By …

Twilight Finale

LGF is releasing its final movie of the teen mega blockbuster twilight today. The franchise has been widely popular and has been a boon to the relatively small movie production company Lions Gate Films. Typically upon movie releases for LGF we see a run up in the stock prior to the release and then a sell off upon release. Typical for Hollywood to buy the rumor and sell the news. There are signs this time might be different, Early returns are already strong, with one report stating that the film grossed 30.4 million from screenings at 10 pm last night and at least one investor is planning on this final addition to buck the trend and beat expectations on this opening weekend. In one trade an investor bought 600 December 17 calls for .29 cents. He is outlaying $17,400 to get long 60,000 shares over 17. This is an attractive way to play the upside in this stock; we have a defined risk, and don’t lose any more than our original capital if the stock does indeed sell on the news.

Morning Update

Since the election the Russell 200 is down 6.3% while RVX, an index that applies the VIX calculation to the Russell 2000 to track implied volatility, is up only 2.7%. Typically we would expect implied volatility to increase 4% for every 1% down move in the stock market, and the breakdown of this relationship suggests that there is no panic selling going on right now. Implied volatility has been kept low because option traders are selling puts into declines in the Russell as they choose levels they are willing to buy the market. Yesterday the largest trade of the day in RUT was a spread known as an iron condor. This spread involves selling an out of the money bull put spread and an out of the money bear call spread. This trader chose to sell 1602 Dec. 700/690 put spreads and sell 1244 Dec. 830/840 call spreads for a net credit of $1.15. At December expiration, which is in 34 days, RUT is between the spreads short strikes (700 and 830), all of the options will expire worthless and the…

Morning Update

Overnight trading saw a risk-off environment as headlines showed Europe has fallen into another recession, their second in four years. This news should not surprise anyone. What is most concerning is that October Eurozone CPI came in at 2.5%, suggesting the Eurozone could be entering a period of stagflation. In Japan the opposition leader called for unlimited BOJ easing, which has caused heavy Yen selling against all major currencies. In the US this morning the October CPI was reported in-line with expectations at a 0.1 M/M increase. Jobless claims, however, were well above expectations for 361K, coming in a 439K. This is likely a distortion in the data caused by hurricane Sandy and the S&P 500 futures are little changed after the data release.

Yesterday October retail sales data showed a seasonally adjusted decline of 0.3% versus expectations of a 0.1% decline. This was the largest drop since June and followed a strong 1.1% advance in September. The SPDR S&P Retail ETF, XRT, …

Morning Update

This morning futures are modestly higher head of the open with the Euro up 0.30% and European indices down. Today retail sales were released for October and came in at -0.3 versus -0.1$% expected. The reading was likely affected by hurricane Sandy, but the bottom line is that ales slowed after accelerating the month before. The PPI was also release this morning and like retail sales came in weaker than expected. Consensus estimates were for a 0.2% increase but the PPI was reported at -0.2% month over month. Food inflation rose 0.4% last month but energy decreased 0.5% led by gasoline prices, which eased 2.2%. The market will be closely following President Obama this week and into next as he aism to begin congressional budget talks this Friday. He is said to be calling for $1.6 trillion in tax revenue increases over the next 10 years, which is likely to be rejected by Republicans.

This morning 773 million Facebook shares will be free to hit the market as another stock lock-up expires.…

Morning Update

Yesterday one of the worst performing sectors was the homebuilders. The SPDR Homebuilders ETF, XHB, sold off 1.5% to close at its 50-day moving average. The ETF saw heavy option volume yesterday, most of which were puts. Over 8 times the average daily put volume traded and the put/call ratio was 12.8. The biggest trade of the day was the purchase of 21,000 Jan. 24/22 put spreads for $0.42 with XHB trading at 25.56. This is a bearish trade that profits if XHB is below 23.58 at January expiration. This would require a 7.7% decline over the next 67 days. This spread will realize its full value of $2.00 if XHB is below 22 at expiration, which will return a profit of $1.58 or a 376% return on risk. However, if XHB is above 24 at expiration this spread will be worthless.

Data suggests that the US housing market has bottomed, so why all the bearishness? Yesterday a component of the XHB, DR Horton Inc (DHI), reported earnings that beat EPS forecasts but missed on revenue. And last week Zillow…

Morning Update

This morning US equities are pointing towards a higher open despite lower markets across Europe. European stock indices have been trending lower after the decision on Greek aid scheduled for today was delayed. Fitch said saying they feel Spain’s debt rating is appropriate but Moody’s said that the ECB is only buying time for the Euro and their decision on France’s rating will be released in a few weeks. This has Spanish-German 10yr bond spreads widening to 450 bps, which is significant because it is the threshold where the LCH, a European clearinghouse, begins reviewing bonds eligibility to meet margin requirements.

One sector that has showed relative strength during last week’s broad market decline was the consumer discretionary sector, XLY. XLY is one of the best performing sectors year to date, up 15.43% versus an 8.36% gain for SPY. However, one option trader is betting that the good times are over for this ETF. The biggest option trade on Friday was the purchase of 2500 March 46/…

Morning Update

Yesterday the S&P 500 sold off over 1% and the VIX also sold off over 4%. Typically for a 1% down move in the S&P 500 the VIX will move up by 4%, so yesterday’s price action was very atypical and is a bullish indicator. The VIX moves up when the S&P moves down because traders bid up the cost of out of the money puts in order to protect their portfolios from further declines. Yesterday we saw traders doing the opposite: selling puts at levels they were willing to get long the market. The biggest trade of the day in SPY options was the sale of 48,000 Nov. 136 puts for $0.53 with SPY at 138.75. This trade will profit as long as SPY is above 135.47 (2.4% lower) at November expiration, which is in 8 days. If SPY is lower than 136 then the trader will be put to 4.8 million shares of SPY at 136, but regardless the trader will keep the $0.53 in premium collected.

For people who want to begin buying into this sell off selling puts is a good way to go because you can effectively get…

Morning Update

Yesterday the market sold off on news that Obama has been reelected and the announcement by Draghi that Germany’s economy is beginning to suffer from the European debt crisis. CNBC showed scenes of violent riots in Greece throughout the day, which also helped drive the market downward. The Greek riots were due to parliament’s austerity vote last night, which unsurprisingly passed. Today attention will be focused back on the US. Jobless claims this morning came in at 355K versus 370K expected and 363K last week. The US balance of trade was also released, coming in at -$41.5B versus -$45.4B expected and -$43.8B last month. The S&P 500 futures are modestly higher ahead of the market open though the better than expected data did not have a profound effect on them. Today we will be closely watching the S&P’s price action around 1402, which is the 100-day moving average, and 1380, which is the 200-day moving average. The market looks like it wants to test 1380, though it could test…

Morning Update

Yesterday as election results rolled in the S&P 500 futures sold off, hitting lows for the night as NBC announced Obama had won the election. After the news the futures rallied to test the 50-day moving average but the level was swiftly rejected as Mario Draghi said the European debt crisis was beginning to hurt Germany, Europe’s largest and most resilient economy. This caused traders to go into risk-off mode, with bonds catching a bid and equities across North America and Europe being sold.

As Americans took to the polls yesterday to choose the country’s new leader, China’s Politiburo Standing Committee is preparing for the 18th National Congress of the Chinese Community Party which will begin Thursday and result in a new ruling elite. Expectations are for Xi Jinping to be named party chief, effective next March. As a result there has been heavy options activity in FXI, the China 25 Index ETF. Yesterday one trader sold 19,875 Dec. 36.5 puts for $0.68 and bought 13,250 Dec. 38 cal…

Morning Update

Today is election-day in America and US equity futures are modestly higher ahead of the open despite poor data out of Europe. German Composite PMI for October was reported at 47.7 versus 49.2 last month. Readings like this are consistent with a 0.5% quarterly decrease in GDP. On top of this declines in the France’s private sector over the past two months are the sharpest seen since just after Leman’s bankruptcy in 2009. Nevertheless Europe’s markets are in the green on hopes for that Greece’s newest austerity bill is passed this week. The Euro is well off its lows of the session, which is helping to put a bid in risk assets like crude oil, which is up 1% at the moment.

Ahead of today’s presidential election we noticed heavy call buying in the oil services sector. Call options on Schlumberger were particularly active, with 4.4 calls being bought for every put. The biggest trade of the day was the purchase of 3113 Jan. 77.5 calls for $0.59 with the stock at 69.10. This trader is bullish…

Morning Update

This morning US equity futures are unchanged after Asian markets closed in the red and European stock indices are down as well. The key events this week will be US presidential elections, a leadership change in China, and an vote on further austerity measures in the Greek parliament. Current polls suggest Obama will be the most likely winner Tuesday night, though it is far from a sure thing. European credit market have started the week trading with a risk off tone ahead of these key events, with the German 2-yr yield dipping into negative territory this morning. The dollar is stronger against the Euro as well, though gold, silver, and crude oil are little changed.

On Friday Chesapeake Energy Corporation’s stock fell 7.9% after the company admitted its debt reduction targets for 2012 may be pushed into 2013, along with some deal closings. This drove unusually high put trading volume in the stock on Friday. The biggest trade of the day was the purchase of 7,000 Nov. 19 puts for $0.67 an…

Trading the Election

Moments ago we saw a trader buy 51,504 XLV Nov. 42 calls for $0.07 with XLV at 40.40. This is a bullish bet that XLV, the SPDR Health Care Select Sector ETF, will be above 42.07 in 14 days, or 4.1% higher. We think this is actually a bet on the outcome of the election. An Obama victory is likely to benefit healthcare stocks while a Romney victory is likely to benefit the energy sector. Various polls show a wide range of election outcomes, with most showing Obama holding a narrow lead. At the office we like to watch markets like inTrade to see where people are betting their real money. The inTrade market for Obama to win currently implies that he has a 66.3% chance of winning. This trade is risking $360,528 and could potentially make many multiples of that, and shows how some of the smart money is beginning to position themselves for an Obama victory.