Despite Monday’s Losses There Are Stil Some Bullish Stock Plays

The earnings season is in full swing and IBM (IBM) released after hours beating estimates by .04 but missing on revenues. This is a theme that I would be ready to see this earnings cycle - meet or beat on earnings but miss on revenues and lower guidance for FY 09. Also into the midday and into the afterhours there was a lot more chatter about the current stimulus plan for the struggling financial institutions, where the government will take the remaining of the $700 billion in stimulus monies and do what they did with Citi (C), buy common stock out right to directly dump cash into the empty coffers of these institutions. This to me seems to be more of a back door to nationalization than infusing cash directly to the institution.

This is why I am watching the earnings to see what the forecasts and statements on the impact of government ownership on the institution. The crude markets also were crushed with increased inventories and the strength of the dollar. Gold also performed well today with the May Gold Futures contracts, GCK9 886.00+18.20, which is more of a safe haven play. There are no economic numbers for release until the Crude Inventories number on 4/22.

After Hours

Stocks suffered steep losses Monday, weighed down by renewed concerns about the credit markets and the problems in the financial world. BofA (BAC) was the biggest loser in the Dow Jones Industrial Average, falling 24 percent and closing near session lows of $8.02 per share. The bank reported quarterly profits before the opening bell and, while the headline number topped analyst expectations, BofA also showed losses in some areas of traditional banking like credit cards and mortgages. BAC shares were not alone, however. All thirty Dow stocks finished the day with losses and the industrial average gave up 289 points. The day’s economic data didn’t help much. A report released 30 minutes into the trading session showed the list of leading economic indicators falling 3 percent in March. In the end, bulls found little good news to hang their hats upon and Monday’s volatile move lower triggered a clear increase in risk perceptions. The CBOE Volatility Index (^VIX) snapped back 5.24 to 39.18. Approximately 9.1 million calls and 7.9 million puts traded across the exchanges.

Bullish

NetApp (NTAP) call options were active Monday after Barron’s mentioned that IBM (IBM) might start eyeing the company now that IBM and Sun Microsystems (JAVA) merger talks have broken down. NTAP bucked the bearish trend and finished the day up 20 cents to $17.79 per share. 22,000 calls and 4,000 puts traded on the day. Active trading was seen in June 12.5, May 17.5, May 20, and May 21 calls. Bullish trading was also seen in Dicks Sporting Goods (DKS), Northrup Grumman (NOC), and Data Domain (DDUP).

Bearish

Bearish traders surfaced in Sony (SNE) Monday. Shares fell 67 cents to $25.70 and options volume rose to 3X the normal levels. Most of the activity was in October puts at the $20 strike. 5,137 contracts traded, compared to existing open interest of 199 contracts. In addition, with 100 percent of the volume hitting ask-side of the bid-ask spread, it appears that some investors were buying puts to open new positions as shares of the Japanese electronics company slipped lower Monday. Bearish trading also surfaced in Calpine (CPN), WR Grace (GRA), and Amkor Technology (AMKR).

Index Trading

The Mini-NASDAQ 100 Index saw a bit more volume than usual. The index lost 4.45 points to 130.94 and most of the action was in the May contracts after a strategist apparently sold the May 137.5 call and 122.5 put strangle while buying the May 140 call and 120 put strangle. Each contract traded more than 15000X and appears to be part of a substantial condor spread. If so, the trade yields its best profits if the index says between the strikes of the two short options (122.5 and 137.5) through the expiration. Beyond that, the S&P 500 Index (^GSPC), the CBOE Volatility Index (^VIX), and the Russell 2000 (^RUT) had among the most actively traded contracts. Approximately 550,000 puts and 500,000 index calls traded across all the index products.

ETF Trading

The US Oil Fund (USO) had a rough day after crude oil lost nearly 9 percent Monday. USO, which is an exchange-traded fund that tracks the price of crude through futures, fell $2.23 to $27.22 per share. Sentiment in the options market seemed somewhat bullish, however. July 28 calls topped the most active list and included several large blocks trading at the offer in morning trading. In the end, more than 25,000 contracts had traded, compared to open interest of 2,699. Outside of that, the SPDR Trust (SPY), the PowerShares QQQ (QQQQ), and the Select Sector Financials (XLF) had among the most actively-traded ETF options. Approximately 2.4 million puts and 2.2 million calls traded across all exchange traded funds.

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