Nov 9th 2010 Market Wrap Up

A little pop in the commodities bubble leads so some nice volatility across the board;  metals and grains all end the day by giving up gains in the last hour or so.  Keep an eye on Cocoa, Coffee and Lumber.

Volatility picked up Tuesday afternoon, driven by a bounce in the buck and a reversal in many commodity-related names. Trading was quiet through midday, as the only economic stat of the day showed Wholesale Inventories up 1.5 percent in September, and quite a bit more than the .6 percent increase that economists had predicted. The market didn’t react to the data and things didn’t really get interesting until the final hour. Then, with help from a stronger dollar, some of the metals and crude oil reversed direction. Gold (December), for example, hit a morning high of $1,424.30 an ounce, but finished the day down $11.90 to $1,391.30. Crude oil hit a high of $87.63, but lost $1.15 to $85.91 a barrel. It seems like a strengthening dollar motivated the sell-off in commodities, and stocks followed suit. At the closing bell, the Dow Jones Industrial Average was down 60 points and 74 points from session highs. The NASDAQ lost 17.

The iShares Silver Fund (SLV) saw huge volume Tuesday. Total shares traded surpassed more than 1.41 million, a new record for the ETF. SLV finished the day down 97 cents to $26.18 per share after silver hit a high of $29.34, but gave up the gains to close off 62 cents to $26.81. Meanwhile, in options action, total options volume hit 8X the average daily after more than 1 million contracts traded on this exchange-traded fund. It included 589,000 calls and 429,000 puts. Trading was brisk in November and December options, as options players reacted to the increasing volatility in the white metal today.

Bullish Flow

Yahoo! (YHOO) shares saw volatile action Tuesday. Shares hit a morning high of $17.60 after the New York Post reported that private equity firm KKR might be interested in a Yahoo buyout. Separately, Reuters reported that private equity groups are pushing for China’s Alibaba to buy Yahoo. However, shares slipped in afternoon trading and finished the day 53 cents to $16.97 and off session highs after Dow Jones reported that Yahoo is not talking to private equity firms. Options trading was very active as investors reacted to the day’s events. 134,000 calls and 46,000 puts traded in Yahoo, or 2.5X normal volume. January 19 calls were the most actives. November 17 calls, November 16 puts, and November 18 calls were very actively traded as well.

Bullish options action was also seen in Dryships (DRYS), Southwest Energy (SWN), and Newmont Mining (NEM).

Bearish Flow

Put volume picked up in McDonald’s (MCD). Shares lost 21 cents to $79.10 and were one of twenty-two Dow stocks to finish in the red Tuesday. Meanwhile, options volume hit 2.5X the recent average daily, with 33,000 puts and 9,350 calls traded on the fast food chain. Most of the action was in smaller lots. The top trade was a block of 1258 January 70 puts at 55 cents. January 75 puts were the most actives. 18,700 changed hands and data shows that about three-quarters traded at the asking price, suggesting that buyers were dominating the action. Implied volatility rose about 2 percent to 20. No news on MCD Tuesday, but the overall flow seemed to reflect some bearish or defensive sentiment in the name.

Bearish flow also picked up in Cal-Main Foods (CALM), USG, and Clearwire (CLWR).

Index Trading

The CBOE Volatility Index (.VIX) hit a morning low of 17.83, but finished up .96 to 26.59 Tuesday. Options trading was brisk in the VIX after 130,000 calls and 178,000 puts traded on the index. The top trades were two blocks of 13,500 and 10,000 December 21 puts at $2.25 per contract. A put buyer initiated the trades, according to a source on the Chicago Board Options Exchange. More than 47,000 traded on the session. Another noteworthy trade was a December 19 – 18 – 17 put tree on the VIX, 10000X. That is, the investor bought 10,000 December 19 puts and sold the next two strikes. Like the December 21 put buyer, this “tree” trader seems to expect a move lower in the volatility index through the December expiration.

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