Wednesday, August 31, 2011
Trade of the Day: LyondellBasell (LYB) December $35/$43 bull call spread
The Trade
Buyer executed the December $35/$43 bull call spread 5,000x for a debit of $3.05. Maximum risk is equal to the debit. Break even is $38.05, with profit potential limited to $43. Chart below highlights break even and maximum loss for the trade.
Trade coincides with an overweight rating set for the chemicals company this morning by Barclays. Looking for a recovery from the recent broad market sell off, with significant support at $28. Graph below shows risk profile for trade.
Special thanks to Option Radar, BMO Capital, MEB Options, Bloomberg, Reuters, Optionistics, LiveVolPro, CBOE, AMEX, Option Monster, T.O.P. group, and all of the options desks and traders we work with to provide the option flow!
No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.
Options Flow Recap Aug 31th
Macro / Thematics
VIX - 10,000 of the September 50 calls were bought for $0.375
Options Flow Recap Aug 30th
Macro / Thematics
iShares MSCI Emerging Markets Indx EEM - 58,000 of the December 34 / 40 put spread was bought for $1.34 versus a sale of 50,500 of the September 41 / 46 put spread was sold at $3.23; 50,500x
iShares MSCI Japan Index EWJ - 20,000 of the January 9 / 10 strangle was sold at $0.76 and tied to 240,000 shares at $9.70. Separately, 10,000 of the January 10 calls were sold at $0.40.
iShares MSCI South Korea Index Fund(ETF) EWY - 2500 of the September 45 / 55 put spread was bought for $1.70.
iShares FTSE/Xinhua China 25 Index FXI - 18,750 of the September 40 calls were sold at $0.27.
GLD - 5000 of the October 200 / 220 call spread was bought for $1.475 tied to $178.50.
IYR - 20,000 of the September 50 puts were sold at $0.24.
QQQ - 11,000 of the November 52 puts were sold at $1.75. The puts were sold to open.
XLI - 5000 of the December 33 calls were sold at $1.49
Trade of the Day: AT&T December $27/$24 ratio put spread
The Trade:
A trader put on the December $27/$24 ratio put spread for 10,000x20,000 at a $0.16 debit, or $160,000.
A trader put on the December $27/$24 ratio put spread for 10,000x20,000 at a $0.16 debit, or $160,000.
Laurence Kotlikoff Interview on U.S. Economy
Laurence Kotlikoff, an economics professor at Boston University, talks about the state of the U.S. economy. Kotlikoff speaks with Erik Schatzker on Bloomberg Television's InsideTrack." (Source: Bloomberg)
Tuesday, August 30, 2011
Volatility = Opportunity 8/30
Most Volatile Stocks (>1MM stock volume, >=5k option volume, >=.6 IV) - Google Doc::
http://seaofopportunity.blogspot.com/*Special thanks to Option Radar, BMO Capital, MEB Options, Bloomberg, Reuters, Optionistics, LiveVolPro, CBOE, AMEX, Option Monster, T.O.P. group, and all of the options desks and traders we work with to provide the option flow!No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.
The most volatile stocks for 8/30 sorted by the greatest option volume on top.
http://seaofopportunity.blogspot.com/*Special thanks to Option Radar, BMO Capital, MEB Options, Bloomberg, Reuters, Optionistics, LiveVolPro, CBOE, AMEX, Option Monster, T.O.P. group, and all of the options desks and traders we work with to provide the option flow!No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.
Morning Note Aug 30th
August 30, 2011
US equity futures are all trading lower relative to fair value ahead of the August Consumer confidence figures and Fed minutes release at 14:00 ET for clues as to where the Fed's thinking is with respect to further monetary stimulus.
Options Flow Recap Aug 29th
Macro / Thematic
QQQ – 10,000 September 2 (weekly) 53 / 51 put spread was bought for $0.34.
SPY – 6000 of the October 102 / 108 / 114 put butterfly was bought for $0.46.
TLT – 9700 of the September 95 puts were bought for $0.11.
Monday, August 29, 2011
Trade of the Day: General Electric (GE) Bull Risk Reversals
The Trade:
A trader executed 20,000 November $18/$13 bull risk reversal trades at an $0.11 credit, or $220,000. On Friday, a trader sold 15,000 November $11 puts at $0.23 and bought 10,000 November $18 calls at $0.19, for a $155,000 credit. Another trader sold 22,500 January $11 puts at $0.39 to buy 15,000 January $19 calls at $0.23 for a credit of $532,500.The graph shown below is the November risk reversal.
A trader executed 20,000 November $18/$13 bull risk reversal trades at an $0.11 credit, or $220,000. On Friday, a trader sold 15,000 November $11 puts at $0.23 and bought 10,000 November $18 calls at $0.19, for a $155,000 credit. Another trader sold 22,500 January $11 puts at $0.39 to buy 15,000 January $19 calls at $0.23 for a credit of $532,500.The graph shown below is the November risk reversal.
Trade of the Day: Network Appliance (NTAP) September $39/$33 Bull Risk Reversal
The Trade
Trade executed was the September $39/$33 bull risk reversal 20,000x for a $.08 debit. Profit potential is unlimited. Break even is $39.08.
Shares are down, but have bounced from support near $34 since earnings. Recent large bullish activity seems to suggest the name has bottomed. Just last week you might remember, NTAP was a prior trade of the day.
$13.6B market value, trades 13x earnings, 1.3x PEG, 2.9x cash value and 12x cash flow.
Alternative trade would be the September $33/$31 put bull vertical and the September $39/$41 call bull vertical for a total debit of $.31. Trade offers sufficient profit potential with less risk.
Special thanks to Option Radar, BMO Capital, MEB Options, Bloomberg, Reuters, Optionistics, LiveVolPro, CBOE, AMEX, Option Monster, T.O.P. group, and all of the options desks and traders we work with to provide the option flow!
No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.
Morning Note Aug 29th
August 29, 2011
US futures continue to trade above fair value and are little changed from earlier updates on what is expected to be a lighter than normal trading session. Flooding from Hurricane Irene left many NYC suburbs with limited transportation intoManhattan with some initial loss estimates from the storm in the $7B range.
Thursday, August 25, 2011
Volatility = Opportunity 8/25
Most Volatile Stocks (>1MM stock volume, >=5k option volume, >=.6 IV) - Google Doc::
The most volatile stocks for 8/25 sorted by the greatest option volume on top.
http://seaofopportunity.blogspot.com/*Special thanks to Option Radar, BMO Capital, MEB Options, Bloomberg, Reuters, Optionistics, LiveVolPro, CBOE, AMEX, Option Monster, T.O.P. group, and all of the options desks and traders we work with to provide the option flow!No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.
http://seaofopportunity.blogspot.com/*Special thanks to Option Radar, BMO Capital, MEB Options, Bloomberg, Reuters, Optionistics, LiveVolPro, CBOE, AMEX, Option Monster, T.O.P. group, and all of the options desks and traders we work with to provide the option flow!No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.
Song of the day: Florence + The Machine - What The Water Gave Me
“What The Water Gave Me” is our first look at Florence + The Machine’s forthcoming sophomore LP expected this November.
Options Flow Recap Aug 25th
Macro
SPDR S&P 500 ETF SPY: buyer 22,900 Sep 109/115 qrtly put spread 2x1 for .86
SPY: seller 5,300 Oct 108/114 put spreads at 1.36
Morning Note
August 25, 2011
US equity futures are trading below fair value, though have improved in the past couple of hours. The relative underperformance in Nasdaq futures is due to the resignation of Steve Jobs as CEO of Apple (AAPL). Investors are waiting on the weekly jobless claims data which comes out at 08:30 ET.
Wednesday, August 24, 2011
Volatility = Opportunity 8/24
Most Volatile Stocks (>1MM stock volume, >=5k option volume, >=.6 IV) - Google Doc:
http://seaofopportunity.blogspot.com/*Special thanks to Option Radar, BMO Capital, MEB Options, Bloomberg, Reuters, Optionistics, LiveVolPro, CBOE, AMEX, Option Monster, T.O.P. group, and all of the options desks and traders we work with to provide the option flow!No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.
The most volatile stocks for 8/24 sorted by greatest options volume on top.
http://seaofopportunity.blogspot.com/*Special thanks to Option Radar, BMO Capital, MEB Options, Bloomberg, Reuters, Optionistics, LiveVolPro, CBOE, AMEX, Option Monster, T.O.P. group, and all of the options desks and traders we work with to provide the option flow!No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.
Trade of the Day: Gold Miners (GDX) Bullish Spread
The Trade
Trader executed the December $60/$66 call spread 29,449x for a $2.20 debit, $6,478,780 total, and sold the December $50 put 44,176x for a $1.90 credit, $8,393,440 total. Total credit for spread is $1,914,660.
Maximum loss is $218,965,340. Profit potential is limited to $19,584,060 at $66. Break even for the trade is $49.57. Graph below shows risk profile of the spread.
Trade is a bet on the continuation of gold's uptrend, GDX looking for a bounce to $66 from current levels near $59. Chart below highlights profit potential for the spread.
Special thanks to Option Radar, BMO Capital, MEB Options, Bloomberg, Reuters, Optionistics, LiveVolPro, CBOE, AMEX, Option Monster, T.O.P. group, and all of the options desks and traders we work with to provide the option flow!
No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.
Morning Note
August 24, 2011
US equity futures are pointing to a lower opening, though are off the lowest levels of the overnight, following yesterday's strong performance. Investors game if QE3 will become a reality or whether, if some other form of stimulus is announced, will it meet heightened market expectations, remains a most pressing question.
Moody's downgrades Japan's sovereign debt rating one notch to Aa3; outlook stable. Moody's cites large budget deficits and rising government debt since 2009.
Bullish sentiment decreases to 40.9% from 46.2% in the latest US Investor's Intelligence poll. Bearish sentiment increases to 33.3% from 23.7%. Those expecting a market correction decreases to 25.8% from 30.1%.
Libor fixings
- Overnight Libor: Dollar: 0.144% vs prior 0.144% ; Sterling: 0.580% vs prior 0.580%; Euro: 0.840% vs prior 0.835%
- 1-month Libor: Dollar: 0.219% vs prior 0.218% ; Sterling: 0.655% vs prior 0.655%; Euro: 1.295% vs prior 1.294%
- 3-month Libor: Dollar: 0.314% vs prior 0.312% ; Sterling: 0.880% vs prior 0.877%; Euro: 1.480% vs prior 1.480%
September WTI crude ($0.10) to $85.34
Natural gas +$0.018 to $4.011
Gold $14.23 to $1842.85
10-year yield 2.1320%
30-year yield 3.4564%
Asian Markets
Asian markets fell today after Moody’s downgraded Japan’s sovereign debt.
Australia finished flat after giving up early gains spurred by banks, miners, and some pleasant earnings news. But most investors waited to hear BHP Billiton’s (BHP.AU) results post-close, which missed expectations.
Megabanks fell on the Moody's downgrade, though Moody’s had warned the move was possible in May, and late profit-taking brought Japan to a loss. Tepco (9501.JP) dropped 8% and was the exchange’s most active stock on turnover as investors that bought it in March expecting it to reach its lower limit have started to sell to cover their margin trades. Oil stocks rose on higher prices. On hopes they will soon be able to restart projects in Libya, construction stocks continued to march higher in South Korea, though the market fell. China Life (2628.HK) plunged 12% on results, causing insurers to drag Hong Kong down. Ping An Insurance (2318.HK) fell 4% on a block sale of 4% of its shares at yesterday’s close. BYD (1211.HK) dropped another 8%, extending yesterday’s loss on results. Japan July corporate service price index (0.5%) y/y, unchanged m/m. The yen is trading at 76.55 to the US dollar.
European Markets
European equity markets fluctuated on either side of unchanged, paring modest opening gains to trade mixed before again moving higher to currently trade near session highs. The cautious open followed a strong close on Wall Street, mixed markets in Asia following Moody’s downgraded Japan’s sovereign debt and mixed corporate results with Heineken (HEIA.NA) down (12.5%) particularly disappointing. Germany Aug IFO data also briefly pressured equities and the euro. The French government is due to finalise its 2012 budget proposals today, an announcement expected around 18:00 CET (17:00BST, 12:00ET), whilst the main focus of investors remains on Fed Chairman Bernanke's address at Jackson Hole on Friday. Germany Aug IFO business climate 108.7 vs consensus 111.0, prior 112.9, current conditions 118.1 vs consensus 120.0, prior 121.4, expectations 100.1 vs consensus 103.0, prior 105.0. The pound and the euro are trading at $1.6523 and $1.4460 respectively
Today's Economic Releases (Eastern Time)
04:00 Germany IFO Business climate (Aug) 108.7 vs consensus 111.0 and prior 112.9 04:00 Germany IFO Current Assessment (Aug) 118.1 vs consensus 120.0 and prior 121.4
04:00 Germany IFO Expectations (Aug) 100.1 vs consensus 103.0 and prior 105.0
05:00 Eurozone Industrial New Orders (Jun); +11.1% y/y vs consensus +12.1%, prior revised +13.8% from +15.5%
07:00 US MBA Mortgage Purchase Applications (19-Aug); (5.7%) in 19-Aug week; total market index (2.4%); compares to (9.1%) and +4.1%, respectively, in the prior week; refi index (1.7%) vs. +8.0%
30-year contract ARM rate +7bp to 4.39%
08:30 US Durable Orders (Jul); consensus +2.2%
08:30 US Durable Orders ex transport (Jul); consensus (0.4%)
10:00 US FHFA House Price Index (Jun); consensus +0.2%
10:30 US DOE Crude Inventories (19-Aug); consensus n/a
Today's Key Events (Eastern Time)
09:00 Micron Technology Analyst Conference
09:00 Roadrunner Transportation Services to acquire Prime Logistics: /Intl pc 67157589
12:00 Craig-Hallum Call with the CTO of Move, Inc.
13:00 Treasury Auction of 5-yr notes
—:— American Society of Retina Specialists ~ ASRS
—:— Avondale Partners Trucking Forum
—:— Citigroup One-on-One MLP Conference
—:— Craig-Hallum Call with Sykes Enterprises President and CEO
—:— Global Hunter Securities 1x1 Sales Teach-in with Management with Ceradyne
—:— Global Hunter Securities with Lihua International
—:— Global Hunter Securities with Panhandle Oil & Gas
—:— Global Hunter Securities with Scorpio Gold
—:— GT Advanced Technologies (GTAT) will replace Radiant Systems (RADS) in the S&P 600 - after the close
—:— Marcellus NGL & Shale Gas Infrastructure Summit
—:— Morgan Stanley Semiconductor & Semi-Cap Equipment Corporate Access Day
—:— RedChip Small-Cap Equities Virtual Conference
13:00 Energen Investment Community Meeting
Company Specific News
Earnings
BLT.LN (BHP Billiton reports FY EPS $3.94 ex-items vs Reuters $4.11 and year-ago $2.24. Reports FY: Revenues $71.74B vs Reuters $71.24b and year-ago $52.80B)
DY (Dycom reports Q4 EPS $0.38 vs Reuters $0.24)
LZB (La-Z-Boy (LZB) reports Q1 EPS ex-items $0.04 vs Reuters $0.06)
HAIN (Hain Celestial (HAIN) reports Q4 adjusted EPS $0.35 vs Reuters $0.33)
PSUN (Pacific Sunwear (PSUN) reports Q2 EPS ($0.29))
TOL (Toll Brothers reports Q3 EPS $0.25 including tax benefit; revenues $394.3M vs Reuters $403.6M)
Newspaper Articles / Headlines
Australian
- Labor government inclined to oppose any private-equity bid for Qantas. No mention is made of what the government's position would be if a strategic buyer made an offer. Qantas CEO Alan Joyce tells the Australian that the airline has not received any takeover approaches.
- Labor government inclined to oppose any private-equity bid for Qantas. No mention is made of what the government's position would be if a strategic buyer made an offer. Qantas CEO Alan Joyce tells the Australian that the airline has not received any takeover approaches.
Detroit News
- Detroit News summarizes negotiations between Big Three, UAW. The article doesn't really break any news, saying: The talks have been "tough, but drama-free" UAW president Bob King says both the union and the companies want to avoid strikes and bad blood. Some in the union are unhappy with its conciliatory approach, as they feel the UAW should be fighting for the reinstatement of some of what workers gave up in 2007.
Digitimes
- Samsung Electronics (005930.KS) may be preparing to buy Hewlett-Packard's PC business. Sources from the upstream supply chain tell DigiTimes that Samsung has spoken with notebook makers in Taiwan about possibly outsourcing notebook orders, and the idea could indicate that Samsung will purchase H-P's PC business.
Economic Times
- Takeda Pharmaceutical in talks about buying Cipla (CIPLA.IN) or Lupin (LPI.IN). People with knowledge of the development tell the Economic Times that talks with Lupin are now beyond the initial stage. Takeda wants the company's domestic formuations business and research facility, but the promoters are looking for 17 times Lupin's revenue, which was $1.5B in FY11.
A Cipla spokesperson denies the company is in any talks.
Financial Times
- UK homebuilding statistics this week to indicate fall in planning applications granted for new homes. Whitehall sources tell the FT that the Q2 figures will show another drop after the (15%) y/y fall in Q1.
- Luminar Group Holdings dismisses PwC, hires KPMG as auditor. The announcement came midday yesterday (23-Aug in Europe). The FT notes that the company is expected to fail its debt-covenant tests 31-Aug.
- McGraw-Hill moves toward spinning off its education unit. People familiar with the matter tell the FT: The board has not yet finalized its plans for the idea, which could still change. Thinking the costs would ultimately exceed the benefits, McGraw-Hill does not plan to follow the suggestion made by Jana Partners and Ontario Teachers that the company break itself into four.
- Gulfsands Petroleum gives 2.5% of profits from Syrian operations to relative of Syrian President Bashar al-Assad. The FT does not cite sources, though it says that Gulfsands confirms the arrangement. It is known that the Al Mashreq Investment Fund, which is majority controlled by Rami Makhlouf, al-Assad's cousin, owns 5.7% of Gulfsands.
- Spain to amend constitution to limit budget deficit. The FT reports that the law was proposed yesterday (23-Aug in Europe) by Prime Minister José Luis RodrÃguez Zapatero, and the opposition supports it.
- Kirin's (2503.JP) 15% stake in Fraser and Neave (FNN.SP) makes Heineken uneasy. Without explaining the context of his comments, the FT reports that Heineken CEO Jean-François van Boxmeer says since Kirin is a competitor, it is not an ideal stakeholder at Heineken's Asian JV partner. Nonetheless, he says that protections have been implemented to avoid conflicts of interest, and there is always the possibility of cooperating globally as opposed to on a case-by-case basis.
Globe and Mail
- Digital aerial signals make it easier for customers to cut pay-TV allegiances. The article is largely anecdotal. It notes that so few Canadians (less than 10%) get their signals through the air that the option is unlikely to shut Rogers Communications (RCI.B.CN), BCE (BCE.CN), or Shaw Communications (SJR.B.CN) down anytime soon. Nonetheless, the threat of customers' leaving is real, and it's part of the reason that Rogers is building a video-streaming service.
Independent
- Momentum grows in campaign for Italy to repeal €3B tax break extended to Catholic Church. The Independent reports that the exemption was granted in 2005 by a previous government led by current Prime Minister Silvio Berlusconi. The article does not give a sense of how likely a repeal is, but it notes that the European Commission has been investigating the tax break since October on suspicion that it might constitute illegal state aid.
Los Angeles Times
- Amazon.com spending to get California sales-tax law repealed. The LA Times reports that Amazon has told California's secretary of state's office that it has given $2.25M to a campaign that seeks to put a referendum on the issue on the state's June primary ballot. The article says that the money is probably going to professional signature gatherers, who have gotten enough people to sign long before the 27-Sep deadline.
New York Post
- In SEC filing yesterday, Dish Network chairman Charlie Ergen asked for permission to transfer satellite licenses. The NY Post reports that the transfer would allow him to use the wireless spectrum and satellite operators he has acquired through various means to create a next-gen Long-Term Evolution internet service. He hopes to make it commercially available by 2014. Dish also hinted that it would create a video streaming service if it can establish the network.
NQN
- Japan to establish $100B, one-year facility to address strong yen. Finance Minister Yoshihiko Noda tells reporters the country plans to: use dollar-denominated funds get Japanese companies to convert yen funds into foreign currencies promote M&As that target overseas businesses.
Telegraph
- Charter's mystery bidder remains a mystery. People familiar with the situation tell the Telegraph that Lincoln Electric's (LECO) advisers have only held exploratory conversations about a counteroffer to Melrose's (MRO.LN), which backs up what Reuters reported earlier (see linked comment).
Without citing sources, the Telegraph reports that Illinois Tool Works (ITW) was mentioned as the bidder -- but banking sources close to the situation said that was unlikely -- and TPG Capital may want parts of Charter.
Wall Street Journal
- WSJ suspects SABMiller (SAB.LN) will end up buying Foster's Group Limited by raising offer slightly. A "Heard on the Street" column says:
A share buyback for SABMiller might send the wrong signals, and Foster's has qualities that make it an attractive target for the company
But there's no other bidder, and SABMiller is already offering a higher multiple than it usually does, so a large bump in price simply isn't likely
- WSJ is cautious on Sprint Nextel. A "Heard on the Street" column warns that selling the iPhone takes at least a year to raise a carrier's bottom line, due to the subsidy costs involved. And the more new customers Sprint gets, the hit to its profitability will be greater and take longer to reverse.
- WSJ is negative on new Japanese financial creation: "double-decker" funds. A "Heard on the Street" column says the high-dividend-yield/high-
- Groupon's China JV closes more than ten offices, fires about 400 employees. Current and former employees report the moves to the WSJ, which notes that only eight months ago, the company was expanding wholeheartedly in the country. A Groupon spokeswoman says the company is fine-tuning its strategy, not abandoning the market. The article reminds readers that other western internet companies like Yahoo (YHOO), Ebay (EBAY), and Google (GOOG) have found China difficult to negotiate.
- WSJ looks at likely strategy for Douglas Peterson, rising president of Standard & Poor's. Apart from painting Peterson's history, the WSJ expands only slightly on yesterday's article in the FT. The WSJ notes that Peterson gained experience saying "Sorry" to government officials in 2004 in Japan with Citi (C). People close to Peterson tell the WSJ he will probably embark on much the same strategy immediately in an effort to quell the firestorm of controversy and scrutiny it currently finds itself in.
- Sprint Nextel to get iPhone 5. The article notes that iPhone 5 will hit the market in Oct, later than most expectations in Sep. StreetAccount also notes there had been earlier reports that indicated Sprint could get the iPhone. 9to5Mac reported on 13-Jun that AAPL was in advanced testing stages for a Sprint compatible iPhone and tech blogs were discussing in May the possibility that the iPhone would be coming to Sprint
Moody's downgrades Japan. Moody's has cut Japan's credit rating to Aa3 from Aa2, citing "large budget deficits and the build-up in Japanese government debt since the 2009 global recession." Moody's also blamed political instability, which will see the ruling party soon choose the country's sixth prime minister in five years. However, the EU's debt crisis is unlikely to spread to Japan, Moody's said, and the nation's outlook is now stable as the government is able to obtain "the lowest nominal rates globally."
German business confidence, eurozone factory orders fall. German business confidence in August posted its biggest fall since late 2008, with the Ifo index tumbling more than expected to 108.7 from 112.9 in July. The slowdown in the U.S. and debt problems on both sides of the Atlantic were the main reasons for the worsening outlook. As if to underscore the despondence of German companies, data showed that eurozone industrial orders dropped 0.7% in June after rising 3.7% in May, the sharpest fall in almost a year.
Merkel opposes collateral for bailouts. Angela Merkel has rejected demands that Greece provide collateral for its bailout amid requests from several countries for a Finnish-type deal in which Greece puts ups hundreds of millions of euros in cash as a guarantee. The fissure could expose the eurozone to new dangers, as Finland has threatened to drop out of the bailout if its collateral demands aren't met. In response, Greek two-year bond yields rose two full points to 42%, their highest levels since the launch of the euro.
Fitch: Global CDS liquidity hits fresh record. Worries over government deficits have pushed global CDS liquidity to the highest level on record, Fitch said. Developed-market sovereigns - not emerging markets - have led the surge, indicating renewed "uncertainty on the potential for eurozone contagion" and a global slowdown.
Gaddafi stays defiant. Speaking from a secret location and remaining as defiant as ever despite the fall of his compound yesterday, Muammar Gaddafi has called on Libyans to "cleanse Tripoli of rats" in a message broadcast by the Al-Ouraba local TV station. While pro-Gaddafi loyalists continue to fight on the outskirts of the capital, the rebel council plans to move to Tripoli as early as tomorrow. Brent crude futures are -0.3% at $108.98 and WTI is -0.25% at $85.23.
FDIC must face $10B lawsuit over WaMu. A federal judge has turned down the FDIC's attempt to dismiss a $10B lawsuit filed by a unit of Deutsche Bank (DB) over bad mortgages that were securitized by Washington Mutual before it was seized by regulators and sold to JPMorgan (JPM). The unit argues that loans that WaMu pooled into mortgage bonds did not meet the underwriting standards that had been promised, causing investors to lose billions of dollars. The FDIC had argued Deutsche Bank should sue JPMorgan and not the agency.
ComScore sued for software installations. Two Internet users are suing comScore (SCOR) for secretly installing illegal data-mining software on their computers. The litigants say the program collects user names and passwords, credit card numbers, and prices paid for consumer goods. This is in addition to logging the sites consumers visited and ads they’ve clicked on. If it succeeds, the lawsuit could undermine confidence in comScore, which sells data from about 2M people across 170 countries to financial analysts, advertising agencies and other businesses.
NY AG dropped from foreclosure panel. New York AG Eric Schneiderman has been removed from a committee of state AGs negotiating a deal with major banks over inappropriate foreclosure practices. Schneiderman, who was accused of undermining the work of the panel, opposes any agreement that releases banks from other litigation, including over the securitization of mortgages. Given the importance of New York, a nation-wide deal it doesn't agree to could still leave uncertainty about the banks' liabilities. The institutions involved are Bank of America (BAC), JPMorgan (JPM), Wells Fargo (WFC), Citigroup (C) and Ally Financial.
BofA turmoil continues. Fears about legal liabilities and writeoffs again played havoc with Bank of America (BAC) yesterday as five-year CDS spreads hit levels higher than during the peak of the financial crisis. Shares also tumbled as much as 6.4% yesterday before a broad market rally helped BofA recover to close at -1.9%. The bank had to defend itself from a blog post by former securities analyst Henry Blodget, who said it faced $100B-$200B of writeoffs and troubled assets. BofA called Blodget's claims "exaggerated and unwarranted."
BHP net profit soars 62%. BHP Billiton's (BHP) FH2 net profit excluding items jumped 62% to a record $10.98B, boosted mostly by soaring prices for iron ore. However, the figure missed forecasts, and the world's largest miner warned about higher expenses and was cautious about commodity prices in the short term due to expected weak growth in Europe and the U.S. BHP raised its dividend by 22% but won't buy back shares, as speculated, because its $12.1B acquisition of Petrohawk Energy (HK) will absorb any extra cash. Shares -1.2% premarket.
Insurers on edge as Hurricane Irene heads for east coast. Insurers and reinsurers are preparing for major losses as Hurricane Irene, now at Category 2, heads towards the east coast of the U.S. after hitting the Caribbean. Macquarie's Amit Kumar thinks any losses north of $20B would "mark the tipping point" for the property catastrophe reinsurance market, producing a major overhaul of how the industry operates. Irene could arrive in the U.S. at the weekend, not long after yesterday's 5.9 earthquake in Virginia that caused a nuclear plant to close.
HP sues AU Optronics. AU Optronics (AUO) is being sued by HP (HPQ), one of its largest clients, for allegedly conspiring to fix prices of thin-film transistor LCD panels. HP is relating its complaint to a pending group case against LCD makers on behalf of the buyers of the screens used in PCs, TVs, and mobile devices. HP's lawsuit follows the Justice Department indicting AUO for price fixing last year.
Research
Benchmark: upgraded TSO
Citi: upgraded OMAB
Credit Suisse: upgraded SKS, PWRD
Janney Capital: upgraded HURN
Jefferies; upgraded CACI
Morgan Keegan: upgraded ATRC; downgraded ABT, BSX
Morgan Stanley: upgraded NUE; downgraded STLD, X
Oppeneheimer: downgraded PSUN
UBS: upgraded NDAQ
Options
The VIX dropped 6.17 or 14.54% on the session yeserday; the 3rd largest one-day drop this year. A few notable things about this drop: 1) The contrast between this drop and the one last week (8/11) when a 4.63% increase in the SPX was met with a drop of 9.28% in the VIX. The market sees near-term certainty being restored at a faster pace than before. 2) The volatility of the VIX (or “vol-of-vol”) is nearing an all-time high (30-day realized vol=236.5). The daily re-pricing of risk has been extreme. 3) Longer-dated vols (Sep and beyond) are meaningfully higher than they were on 8/8- the day spot VIX peaked at 48. Short term uncertainty appears to be falling and long term uncertainty is rising: A classic symptoms of a bipolar market.
Banks - we are still concerned even after yesterday's move in the market 1) BAC’s 1.87% decline 2) a 21% increase in XLF front month implied vol and 3) European senior bank CDS reaching all time highs (BNP, Soc Gen, Deutsche Bank, UBS) 4) US Senior financial CDS reaching wides since the financial crisis (JPM, C, BAC, MS, GS). Make no mistake; the backdrop for banks is ugly. XLF Skew says it all. Look at the Oct 10 strike puts, at $.38 those puts they are trading nearly 40 vols (118%) over the nearly equivalent out of the money 15 strike calls which closed at $.06. In simple terms the market is implying that the probability of a 19% decline in the XLF by October expiration is nearly 6x greater than that of a 21% increase.
The skew in XLF looks too rich to pass up. We like making a “bearish within a range” bet on XLF while leveraging its steep skew to one’s advantage via a purchase of the Sep 12-10 1x2 put spread (buying 1 Sep 12 put & selling 2 Sep 10 puts) for $.29. With a max profit of $1.71 or 5.9x the upfront premium paid we think the risk reward on this trade is too good to pass up.
http://seaofopportunity.blogspot.com/
*Special thanks to Option Radar, BMO Capital, MEB Options, Bloomberg, Reuters, Optionistics, LiveVolPro, CBOE, AMEX, Option Monster, T.O.P. group, and all of the options desks and traders we work with to provide the option flow!
No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.
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