Market Update March 31 2011 – TLT Puts Active – bad for Bonds


Bullish Flow (SOHU), a Chinese Internet company, has seen active trading this week. On Tuesday, shares rallied 7.8 percent and options volume included 14,000 calls and 3,700 puts. After a $2.47 point drop Wednesday, shares touched a new 52-week high of $92.27 today. SOHU finished the day up $2.23 to $89.36 and options volume totaled 12,000 calls and 3,650 puts. April 95 calls, which are 6.3 percent out-of-the-money with two weeks and one day of life remaining, were the most actives. 3,160 traded. Another 2,120 April 90 calls changed hands. No news on the stock over the past few days. Some investors might simply be trading puts and calls on SOHU in reaction to the volatile action in the stock price in recent days.
Bullish trading was also seen in Tesla Motors (TSLA), Illinois Toolworks (ITW), Hess (HES)
Bearish Flow
Moody's (MCO) came under fire today after European officials warned that they might ban US credit rating agencies. The news hit the wires midday Thursday and sent Moody's share skidding for a 54-cent loss. MCO finished the day at $33.91 and 2.4 percent off the 52-week high of $34.74 set yesterday. Meanwhile, options volume in Moody's today included 17,000 puts/3,300 calls, or 8X the recent average daily volume. April 33 puts, which are now 91 cents out-of-the-money and expire in 15 days, were the most actives. 4,150 traded. April 31, April 32, May 30 and May 33 puts were actively traded as well. Some investors were probably buying OTM puts on concerns about possible bad news from the EU and additional losses in Moody's shares in the days/weeks ahead.
Bearish flow also surfaced in Dell Computer (DELL), National Bank of Greece (NBG), and Nabors Industries (NBR).
Index Trading
The middle of March saw very heavy trading in the index market, but volume slowed considerably in the final two weeks and has been very light during the past few days. Thursday, for example, 315,000 calls and 489,000 puts traded across the S&P 500 Index (.SPX), CBOE Volatility Index (.VIX) and other index products. By way of comparison, 1.1 million calls and 1.2 million puts traded across all of the index products two weeks ago (3/17). The decline in index volume reflects the change in investor sentiment seen in the second half of March. This decline in fear has also been reflected in the dramatic plunge in the CBOE Volatility Index (.VIX). The market's "fear gauge" edged up .03 to 17.74 today, but is down 43.3 percent from the peak levels seen on March 16.
ETF Trading
Options volume picked up in the iShares Long-term Bond Fund (TLT) ahead of tomorrow's key jobs data. TLT holds long-term Treasury bonds, which tend to fall when there are signs of strengthening economic activity and mounting inflationary pressures. TLT lost 19 cents to $92.13 Thursday on a relatively quiet day of trading in the bond pits. Meanwhile, 39,000 puts and 37,000 calls traded on the exchange-traded fund, which is almost 3X the average daily volume for the ETF. May 85 and May 90 puts were the most actives and included some spread trading. One or more investors were apparently buying the 90 puts and selling the 85 puts, which sets up a bearish spread on bonds with a max pay-off if TLT shares fall to $85 or less through the May expiration.
Posted in Commentary, Currencies, Futures, Options, Stocks