Monday Options Recap
Frederic Ruffy submits: SentimentStocks opened lower, but battled back in morning trading and market action has turned mixed late-Monday. Economic data was in focus early after the NY Empire State Index, a gauge of regional manufacturing activity, showed an increase to 7.10 in August, from 5.08 in July and less than the 7.50 reading that economists had predicted. On an encouraging note, the index for employment included within the broader index rose to 14.29 from 7.94. A bit later, separate data showed the NAHB Index of homebuilder sentiment falling to 17 month lows of only 13 in August, down from 14 the month before and also below economist estimates of 14. Yet, although the data disappointed and the Dow Jones Industrial Average fell in morning trading, the initial decline was orderly and the early losses had been erased by mid-morning. The major averages were in positive territory midday and are trading mixed heading into the final hour. The Dow is now off 16 points, but the NASDAQ added 6.5. The CBOE Volatility Index (.VIX) lost .24 to 26. Overall options volume is on the light side, with about 5.2 million calls and 3.9 million puts traded so far.Bullish FlowBonds are bid and both the iShares Long-term Bond ETF (TLT) and the ProShares UltraShort Lehman 20+ Treasury ETF (TBT) are seeing increasing options action Monday. The benchmark ten-year is up 21/32nd and its yield has fallen to just 2.59 percent. Investors are turning to Treasury notes and bonds, as the economic data disappoints, equities falter, and the Fed sits ready on the sidelines to buy more bonds. In TLT, shares are up $2.21 to $104.50 today and options volume is 2.5X the average daily, with 24K calls and 21K puts traded. In TBT, which moves twice the inverse to TLT, shares are down $1.48 to $32.70 and options volume is 2X the average daily, with 44K calls and 18K puts traded. Overall sentiment seems mixed, but there seems to be at least a few traders looking for a correction in Treasurys and buying calls on the TBT. The fund is now 34 percent below levels seen in early April and, after today’s dip, has suffered a three-week 12.4 percent slide.Complete Story »
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