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Morning Update

European equities traded slightly lower heading into the North American crossover with little newsflow to prompt market direction, as investors continue the wait-and-see play for any major developments from the Eurozone. Nonetheless, some modest risk-off sentiment is observed in the equity space, with financials underperforming the broader indices. US stock futures currently trade higher, indicating a modestly higher open on Wall Street today. (ZeroHedge)

Yesterday we saw bullish option trading in Viacom, with one trader buying 60,000 December 60 calls for 0.50 with the stock at 54.59. This is an aggressive bullish bet that the stock will continue its strong trend upward into the end of the year. This trade breaks even if VIAB is at 60.50 at December expiration, which would require an 11% move up in the next 87 days. Yesterday Deutsche Bank raised their price target on the stock from $57 to $62 citing improving Nickelodeon ratings.

Another name that had unusual activity yesterday was XHB, the SPDR Homebuilders ETF. This ETF hit a new 52-week high last week and is up 47% year to date. One trader, however, believes this run up is overdone and is betting on a 15% or more correction by January expiration. The biggest trade of the day in XHB was the purchase of 42,000 Jan. 22 puts and simultaneous sale of 42,000 Jan. 20 puts for a net debit of $0.26. This is a limited risk, bearish vertical put spread. Basically the trader is buying the Jan. 22 puts and financing this by selling the Jan. 20 puts. This reduces the net risk in the position to $0.26 but also limits the potential profit in the trade to $1.74. The spread breaks even if XHB is below 21.74 at January expiration, and makes 6.7 times risk if XHB is at or below 20, a 22% move down from yesterday's close.


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