After Hours Report for February 8, 2011

S&P 500 Index (.SPX) 1,324.57 +5.52
CBOE Volatility Index (.VIX) 15.81 -0.47
DJIA 12,233.15 +71.52
NASDAQ 2,797.05 +13.06

The Dow Jones Industrial Average brushed off early weakness and closed higher for a seventh day. News that China raised rates for a second time in six months seemed to weigh on sentiment early Tuesday and the Dow hit a low of 12,151 in morning action. However, with help from McDonald's (MCD), which gained 2.6 percent on strong worldwide sales numbers, the industrial average had moved back to positive territory by midday. From there, amid a lack of news, the Dow didn't do much in the second half of trading. At the closing bell, it was up 71 points to 12,233 and more than 80 points off session lows. The NASDAQ added 13.

Bullish Flow

Pepsico (PEP) calls were busy today. Shares finished the day up 49 cents to $64.19 and options volume was 18,000 calls and 3,900 puts. February 65 calls, which expire in 10 days, were the most actives. 8,580 traded and 77 percent traded at the ask. Another 4,916 April 67.5 calls traded, with 94 percent trading at the ask. Since most of the volume was at the offer, buyers were apparently driving the order flow. The bullish action might be a play on earnings. Coca Cola (KO) releases results tomorrow morning and Pepsi delivers its profit report Thursday.

Bullish trading was also seen in St. Jude Medical (STJ), Bank of New York (BK), and Red Hat (RHT).

Bearish Flow

Enterprise Product Partners (EPD) shares came under pressure today on news of a fire at one of the company's plants in Houston, Texas. Shares traded down $1.15 to $42.65 on the day and options action included 15,000 puts and 6,350 calls. March 40 puts were the most actives. 5,100 traded and 82 percent traded at the ask. February 41, 42, and 43 puts were busy as well. Some investors might have been initiating trades in EPD puts to hedge shares. Others might have been taking positions in EPD options to play the potential volatility in the stock as events unfold.

Bearish flow also surfaced in Whole Foods (WFMI), Cubist Pharmaceuticals (CBST), and Computer Sciences (CSC).

Index Trading

Trading volume was light in the index market Tuesday, with 412,000 calls and 503,000 puts traded across the S&P 500 Index (.SPX) and other cash indexes, which is only 78 percent the recent average daily, according to Trade Alert data. One index that did see increasing volume is the US Dollar Euro Index (.XDE). This index tracks the euro/USD currency pair and added .48 to 136.32. XDE is up 5.6 percent over the past month, as the euro has been rallying against the buck since January 7. In options action Tuesday, some players seemed to be betting against the European currency, however, as volume in XDE hit 6X the usual and put buyers seemed to be dominating the action. February 136.5 puts were the most actives. Feb 135.5 and 136 puts saw action as well.



ETF Trading

An interesting spread traded in the iShares Small Cap Fund (IWM) for a second day. Shares touched a new 52-week high Monday morning and finished the day up 57 cents to $81.23. In options action, one investor sold 40,000 March 75 puts at 77 cents, bought 20,000 March 78 puts at $1.39 and bought 20,000 March 72 puts at 43 cents. The position is a 1X2X1 March 78 – 75 – 72 put butterfly spread for a net debit of 27 cents. It's a bearish play and was also bought 20,000X yesterday at 26 cents. An institutional investor looking for a short-term hedge might have initiated these flys. The max pay-off happens if shares fall to $75 by the March expiration, or 7.7 percent in 38 days.

Posted in Commentary, Earnings, Futures, Options, Stocks, Watchlist Tagged with: , , , , , , , , ,