After hours Update 2

After Hours Report for January 31, 2011

S&P 500 Index (.SPX) 1,286.12 +9.78
CBOE Volatility Index (.VIX) 19.53 -0.51
DJIA 11,891.93 +68.23
NASDAQ 2,700.08 +13.19

Stock market averages finished with gains on the final trading day of January 2011. The economy was in focus early after data showed personal spending up .7 percent in December, which was .1 percent better than economists had predicted. Incomes rose .5 percent and below expectations (of .4 percent). However, after a 178-point slide Friday, the Dow Jones Industrial Average opened steady and saw morning strength after separate economic numbers released later showed the Chicago Purchasing Managers Index, a gauge of regional manufacturing activity, up to 68.6 in January, from 66.8 the month before and much better than the 65 reading that economists had predicted. Coal stocks were in focus after a merger between Alpha Natural Resources (ANR) and Massey Energy (MEE) was announced. Exxon Mobile (XOM) gained 2.1 percent was one of 21 components of the Dow Jones Industrial Average to finish with gains after the oil giant reported earnings that topped Street estimates. The Dow added 68 points. The industrial average gained 2.7 percent for the month and enjoyed its best January since 1997.

Bullish Flow

Fifth Third (FITB) shares added 23 cents to $14.87. Meanwhile, 8,875 calls and 970 puts traded on the Cincinnati-based regional bank. The top trade of the day was a block of 4,900 February 15 calls at 38 cents per contract, which traded on the International Securities Exchange [ISE]. It was an opening customer buyer, according to data from the ISE exchange. 6,880 contracts traded total and the volume appears to be driven by short-term bullish trading. The bank reported earnings last week and, although share slipped on the news, the stock is up 24.4 percent since the end of November. Deutsch Bank raised their price target on FITB Friday.

Bullish trading was also seen in NPS Pharmaceuticals (NPSP), Kinross Gold (KGC), and McKesson (MCK).

Bearish Flow

Best Buy (BBY) shares lost 11 cents to $34 today and have now given up 18.5 percent since the electronics retailer reported earnings in mid-December. Options actions seemed somewhat defensive as well, after 21,000 puts and 6,040 calls traded in the name. The action included blocks of February 33 puts traded at 52 cents on the ISE and are opening customer buyers. Another noteworthy trade was a February 32 – 33 put ratio spread (2400X4800), which might have been a closing trade or possibly a roll down in strike prices. February 34 and March 35 puts saw interest as well. Overall sentiment in BBY seems somewhat defensive or bearish and to reflect concerns about additional losses in the stock in the weeks ahead. February options expire in 18 days.

Bearish flow also surfaced in First Energy (FE), Excel Maritime (EXM), and Big Lots (BIG).

Index Trading

Trading in the index market remained defensive, even as the S&P 500 Index (.SPX) added 9.78 to 1,286.12 and finished near session highs. The CBOE Volatility Index (.VIX), which closed above 20 Friday, eased .51 to 19.53. Meanwhile, 653,000 puts and 366,000 calls traded across all index products. The top five most actively traded index contracts were puts on the S&P 500. March 1,280 puts, which are now 6.12 points out of the money, were the most actives. 50,060 traded. March 1,200, March 1,260 and March 1,275 puts were also actively traded. Increasing interest in short-term out-of-the-money puts in the S&P 500 is often a sign of defensive trading by institutional investors and probably reflects the uncertainty about the global macroeconomic outlook, including the European Sovereign Debt crisis, tighter monetary policy in China, and now the political unrest across Arab nations.

 

US Oil Fund (USO) saw a day of heavy trading after crude oil gained $2.59 to $91.93 a barrel. USO, which is an exchange-traded fund that tracks crude oil through futures contracts, finished the day up $1.03 to $38.61. USO is up 7.4 percent during the past two days. Meanwhile, options volume in the oil fund included 233,000 calls and 75,000 puts. April 50 and 53 calls were the most actives and included some spread trades. For example, 7,018 April 50 – 53 call spreads traded for a nickel at 11:50. The spread is only a nickel because the spread is so deep out-of-the-money. The fund would need to settle at $50.05, or almost 30 percent above current levels, for the spread to breakeven at the April expiration. This high risk-high reward play traded more than 20000X on the day.

Posted in Commentary, Futures, Options, Stocks, Watchlist