United States ponders the punch of Monday’s rally
Despite a late-day rally for U.S. shares on Monday, volatility remained at an elevated pitch throughout the session on tenuous gains for financial stocks and high level of short and speculative interest in oil-related shares following a slide in commodity prices. The CBOE Volatility index (VIX) remained wary of the day’s rally and took the longest time to turn red on the session, still closing comfortably above the 20-point mark at 22.94. Call trading remained the dominant theme. Earlier in the session, a slug of 2,000 puts traded in the August contracts at the 15 strike, but that volume paled in comparison to 12,700 calls at the 14 strike, 5,100 calls at the 16 strike and volume of 31,000 and 20,000 lots at the 25 and 30 strikes respectively. The October 20 straddle appeared to be in action 2,000 times at a slightly higher premium cost of 6.65, plotting at a range of between 13.35 and 26.65 by the end of summer.
Whether Monday’s rally has any stick to it will be largely up to the rhetoric (or lack thereof) of Fed Chairman Ben S. Bernanke, whose convening August Fed is unlikely to take alleviating steps on the interest rate front, but may make comment on the affect of U.S. housing market woes and the increasingly enmeshed global credit crunch, U.S. stock futures are flat-to-lower this morning. The futures contract on the S&P 500 (SPX) is trading .03 below fair market value at 1,469.00. The Dow Jones Industrial Average future (INDU) is trading .05 points below fair market value at 13,471.00, while the Nasdaq future (NDX) is trading .02 points above fair market price at 1,963.47.
Asia-Pacific stocks enjoyed a mixed-to-higher session today. Hong Kong’s Hang Seng index saw a slight .13% loss at 21,907.99. Japan’s Nikkei average pulled off a miniscule .04% gain on the day at 16,921.77, urged onward by a 20-plus point gain from Trend Micro (TMI) while the Singapore Straits Times average lost 0.21% to close at 3,302.01.
Financials were also the primary drivers leading European stocks into roundly positive territory today, with France’s CAC 40 leading the upward-bound benchmarks, up 1.56% at 5,619.17, on gains from BNP Paribas (BNP), Societe Generale (GLE) and Credit Agricole (ACA). The FTSE 100 is up 1.20% at 6,263.20, led by gains from Royal Bank of Scotland (RBS) and a pair of bellwether commodity stocks, Anglo American Plc (AAL) and Royal Dutch Shell (RDS) while Germany’s Xetra DAX is striving for a percentage point gain on the day, currently at 7,497.38 thanks to gains by Deutsche Bank (DB), Allianz SE (ALV) and Commerzbank (CBKG).
In European options news, the continent’s second-leading semiconductor maker Infineon (IFX) has taken a cue from U.S. blue-chip stocks and initiated its own internal house cleaning. One day after announcing that it was parting ways with CFO Ruediger Guenther and dramatically cutting its majority holding in the loss-generating memory-chip maker Qimonda (QI), call interest continues at a respectable clip. With underlying shares commanding EUR 11.23 this morning, action is once again concentrated on the September calls, where 10,321 contracts traded at the September 12.50 put. This marks the second day running that September calls in Infineon have attracted volume in the tens of thousands of lots – in Monday’s session, more than 22,000 lots traded at the EUR 11.50 lot. By all accounts, it seems a resolute vote of confidence on the part of European investors that the future looks brighter for Infineon shares, which have underperformed the DAX index by nearly 10% for the year to date.
Earnings are due out today from Cisco Systems (CSCO), reporting after the bell. El Paso Corp (EP), one of yesterday’s big movers by volume, is due to release at 10:00, followed by Tenet Healthcare (THC) and nationwide casino chain Harrah’s (HET).
Rebecca Engmann Darst
Equity options analyst/Financial Writer
(203) 618-5988
