Broad Based Rally


Market Recap
Stocks are broadly higher with help from earnings and diminishing concerns about the European Debt Crisis. Morgan Stanley (MS) is up 9.1 percent and is a leader among the financials after the investment bank's earnings and revenues topped expectations. AT&T (T), Union Pacific (UNP) and Philip Morris (MO) are also rallying around earnings news.
Meanwhile, stock benchmarks across the Eurozone and the euro moved higher again today after EU officials moved closer to approving aid to Greece following a meeting in Brussels. On the economic front, the domestic news was less bullish. Data released before the bell showed jobless claims up by 10,000 to 418,000 last week. Economists were looking for a 3,000 increase. Meanwhile, the Philadelphia Fed Manufacturing Survey improved in July, but remains at low levels of 3.20 (consensus was 0.0).
The List of Leading Indicators increased by .3 percent in June, which was in-line with expectations. Still, Intel (INTC) is one of only two losers in the Dow Jones Industrial Average after the chipmaker's earnings fell short of some expectations. 28 Dow stocks are higher and the industrials have added 125 points. The tech-heavy NASDAQ gained 16.3. CBOE Volatility Index (.VIX) lost 1.25 to 17.84. Trading in the options market is active and reflects the bullish underlying sentiment, with 5.2 million calls and 4.1 million puts traded through 12:00pm ET.
This Morning's Bullish Trading
Yahoo (YHOO) shares fell on earnings news Wednesday and slid to multi-month lows of $13.36 Thursday morning. However, Yahoo has recently rebounded and is now up 8 cents to $13.56 through midday. Options volume on the Internet search company is 90,000 calls and 26,000 puts. The top trades are part of a spread, in which the strategist apparently bought 13,100 October 16 calls at 34 cents and sold 13,100 October 18 calls at 12 cents. In other words, they bought the Oct 16 – 18 call spread for a 22-cent net debit. This spread is relatively inexpensive at 22 cents because the breakeven (at expiration, excluding commissions) is at $16.22, or 21.4 percent above current levels. YHOO shares have been under pressure since early-May, when the stock was setting new 52-week highs of $18.84.
The top options trade so far today is in Bank of America (BAC). Shares, which slipped on earnings and fell to new 52-week lows of $9.40 Tuesday, are up 35 cents to $10.20. In BAC options trading, one investor paid 2 cents per contract for a 144,982-contract block of January 20 calls on the bank. The calls were trading for only 2 pennies because the contract is $9.80, or 96 percent, out-of-the-money. Today's hefty premium purchase might be a closing trade. Open interest in these deep out-of-the-money call options is 488,169 and one of the largest positions in BAC.
This Morning's Bearish Trading
Travelzoo (TZOO), a New York, NY internet information service provider, is getting slammed today after the company posted quarterly earnings of 30 cents per share, which missed Street estimates by 9 cents. TZOO tumbled 33.3 percent to $57.20 and volume in Travelzoo options is running 7X the recent average daily, with 10,000 calls and 5,820 puts traded in the name. The action has been in smaller lots. The top options trade in TZOO today is a 92-contract lot of Aug 45 puts at 80 cents. Meanwhile, August 60 calls, which are now almost 5 percent out-of-the-money, are the most actives. 1570 traded. August 85 calls and 60 puts are seeing active trading as well.
Hertz (HTZ) shares add a nickel to $15.73 today and a noteworthy spread trades in the car rental company. In this strategy, the investor bought 2,300 August 16 puts at an average of $1.075 per contract and sold 4,600 August 14 puts at an average of 27.5 cents. Therefore, they paid a net debit of 52.5 cents for the August 16 – 14 (1X2) put ratio spread and appear to have opened a new position. If so, they might be bracing for shares to head back towards $14 through the August expiration, which is in 29 days. The bearish play might be a hedge ahead of earnings. The company is due to report on August 2.
Volume Signals
Intel (INTC) options volume is running 2X the (22-day) average, with 201,000 contracts traded and call activity accounting for 66 percent of the volume.
Morgan Stanley (MS) options volume is 2.5X the average daily, with 69,000 contracts traded and call volume representing 61 percent of the activity.
Pepsico (PEP) options volume is running 6X the average daily, with 59,000 contracts traded and call volume representing 50 percent of the total volume.
Increasing options activity is also being seen in US Interdigital (IDCC), Chevron (CVX), and Seagate Technology (STX).
Volatility Alerts
Genworth (GNW) shares are down and implied volatility is up today after the company pre-announced second quarter earnings and results showed a significant increase in mortgage insurance reserves. GNW is trading down to 52-week lows and was recently off 13.5 percent to $8.20 per share. Meanwhile, options volume in the Richmond, VA insurance company is running 8.5X the average daily. 41,000 calls and 9,515 puts traded in the name so far. Implied volatility jumped 28.5 percent to 60.
Posted in Commentary