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Options are on fire both ways, either down or up

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May 24, 2010 – Comments (1)

the huge moves in stock prices is making options move in a even more dramatic way both on the downside as well as on the upside.

Morning Watch, May 24

Jody Osborne, Optionetics.com

May 24, 2010   

Quiet open for stocks as bulls try to add to Friday’s bounce off support. Nothing occurred over the weekend to convince traders to sell and a huge rally in China has offset declines in the euro. Bank stocks in the U.S. are seeing strength following an analyst upgrade. Last week saw stocks fall substantially, despite a large rally to end the week. Support held for the major market indices, but fear remains high thanks to uncertainty across the globe.

The euro continues to suffer Monday with the currency down following bearish news in Spain. The Bank of Spain took control of CajaSur, a troubled savings bank, providing 550 million euros to keep the bank viable. Other news out of the euro zone include Britain’s plan to cut $9 billion in government spending. Indices in Europe are seeing quiet trading as well in midday action.

 In China, the Shanghai Index rose sharply to start the week, up more than three percent. This gain came on rumors China’s government will slow its tightening measures. China has seen huge gains in GDP and this has led to tightening measures. Nonetheless, the Shanghai Index has fallen nearly 20 percent in the past month.

Despite problems in the banking sector in Europe, this sector is outperforming in the U.S. in early trading. Goldman Sachs upgraded several banks, including Citigroup (C), which it raised to “Buy” on Monday. Citi shares are up 2.5 percent on the news at a price near $3.85. The Financial Select Sector SPDR (XLF) is down slightly in early trading.

Airline stocks are on the rise today led by US Airways (LCC), which is up, but off its opening highs. This sector has benefited from merger activity, as well as a drop in oil prices. UAL (UAL) and Continental (CAL) announced a merger a few weeks ago in a move that will create the largest airline. Oil prices are near $70 a barrel, off from their highs a month ago near $87.

Fear remains high with the CBOE Market Volatility Index (VIX) at a level not seen since late 2008 and early 2009. The 30 level has been a resistance point, but the VIX easily broke through this level in early May and remains above 40. Fear rises when traders buy puts, showing pessimism and uncertainty. However, support did hold Friday for the major market indices as short covering helped stocks see large gains on the session. These gains are hard to find Monday, but activity is quiet to start the week.  

Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site

 

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