Good morning from Chicago, I’m Alan Knuckman here at the CBOE with your Pre Market Pulse for Tuesday, September 9th.

Volatility reared its pretty head as the prime mover in the market as a new week began Monday. Price movement can mean opportunity in what has been a slow couple of weeks of stock melt up.

The VIX traded above $13, finishing at $12.66 up 4.75% on the day.  As a weekly reminder, the VIX has remained significantly above record lows even with the S&P price continually made new highs.

On a light day, with only 60% normal VIX volume, a SIZE paper order (meaning real money institution or hedge fund) saw a buy of 15,000 of the October $18 calls at $.74 ask.  The total on the day was 20,000 contracts with the expiration break even 48% above the closing VIX price.

Positive performance had the NDX Nasdaq 100 fight the downward pressure to close up .14% at 4095, ½ less than 10 points from the recent record last Wednesday. All eyes are on Apple today with shares closing at $98.36 for the fourth session below $100.  AAPL options traded a less than robust 778,000 contracts, still number one in equity options, with 66% call volume.

YHOO for Ali Baba, as shares jumped over 5% to new 52-week highs closing at $41.81.  At 4x normal option volume, YHOO traded a close second with 771,000 lots.  More than 22,000 of the October $45 calls traded with a Bid and Ask mix.  Yahoo is up over 16% in the last month, as the stake in the pending ALIBABA IPO comes into focus.

Pharma Mylan had nearly 8x normal option activity, closing at $47.96, up 2%.  MYL had bull spread action in the January $49/$57.50 calls around $2.50.  The March 4^th price peak sits at $57.52, a level necessary to achieve max profit at expiry.

The Broad market S&P 500 SPX closed down .33% at 2001 ½, with a healthy range from 2007, only 4 points from the record peak, and the low at 1995.  In the SPY S&P 500 SPDR, a 49,000 lot of the Nov $195 puts were sold at $2.69.  With open interest of 87,000 contracts, the motivation is to be determined. This article offers free shipping on qualified products, or buy online and pick up in store today at Medical Department.

Blue Chips dropped 26 points to 17,111, making a .15% loss.  The YTD score is up 3.14% for the dogged DOW, with a third of the components still red in 2014.

Former Dow component Bank of America jumped 2% to $16.35, trading 1.3 times normal option activity on an impressive 79% calls as the number 3 equity option of the day. BAC out of the money January $17 calls were in play early and often starting with a 20,000 lot buy at the Ask for $.57.

Stocks to watch this morning include:

Annie’s Organics is being bought by General Mills for $46 a share, with BNNY the good macaroni and cheese up 37% in the pre market.

Twitter added a buy button to all tweets, and it has worked, with the stock up .5% to $52.30 before the bell.

Burlington Stores, that old coat place, (not just old coats but that what they used to be known for was coats) is up 5% in the pre market on good earnings results and raising outlook.

Overseas markets have The Nikei in Japan up .25% to lead the day.  Europe in going nowhere after action yesterday as the FTSE in London and the DAX in Germany are steady to unchanged.

Stock index futures prices are steady with the Emini S&P plus 1 point.  The Dow futures are 10 points higher here this morning, with an hour to go before the open of the cash stock market.

Crude oil opened down 1.7% on Monday as investors were rattled by more negative news from the Ukrainian front.  Although an apparent ceasefire was reached, fighting near two flashpoint cities in East Ukraine broke out less than 48 hours after the agreement.   The fighting has forced Western nations to threaten additional sanctions against Moscow.   Investors will continue to keep a close eye on the conflict as Russia is the second largest oil producer in the world.

Oil has dropped over 13% from its yearly high reached in late June of this year.  Disappointing Chinese and European data  stopped the recovery attempt Oil investors made last week and lower prices appear to be coming.  Poor Chinese factory output numbers showed that China, the number two consumer of oil in the world, may be entering a cyclical decline thus lightening demand.

Oil tends to follow a pattern of peaking in the middle of summer followed by a weak 2 – 4 months before continuing up.  While this drop may be cyclical in nature, economic and political concerns continue to keep investors on their toes.

We will continue to watch for a bottom in $OIL as it tries to hold near its 52 week low at 21.30.

DISCLAIMER:

Good morning from Chicago, I’m Alan Knuckman here at the CBOE with your Pre Market Pulse for Monday, September 8th.

In another addition of THE MARKET DOESN’T CARE, the monthly employment report was well short of expectations, BUT it didn’t hurt the longs as stocks surged to end the week.  Board gains erased early losses, resulting in another plus day for the markets.

Technology led gainers with the NDX Nasdaq 100 up .6%,  closing on session highs up 24 points at 4089.  The weekly score for the shortened 4 days was -.4% to total 14% YTD, with a new highs Wednesday at 4104.

A 13,500 lot option block in Oracle collected $500,000 premium in what looks to be a covered call on long stock, with the stock closing at $41.42.   ORCL traded 2x normal option activity with the sale of the Oct $43 calls at $.42.  ORCL’s 52-week high is $43.19.

Coupon Groupon has stabilized, trading between $6 and $7 for the past four months, closing at $6.82 on Friday.  The stock is down 40% this year, with option action in the Jan 2016 puts sold-to-open as a way to get into the stock lower.  3000 of the GRPN $ 3 puts sold at $.15 cents either has at $2.85 buy basis 58% below or get paid $45,000.

The Broad market S&P 500 SPX rebounded from 1990 support lows to close up .5% at just under 2008, plus a nice 10 points.  That put the index in the green for a fifth consecutive week, up about .25%, keeping the streak intact.

The XLU Utilities sector ETF closed at $43.62, continuing its rally run.  The Sep $42.50 put was in play with 30,000 contracts traded, versus open interest of 10,000. An August 6^th swing low at $40 has seen a 7% jump in a month.  The June 52-week high at $44.32 is less than $.75 away.

Walgreen is up 15% from its June 52 week high at $63.95, adding 2.4% Friday.  Options saw  3.4x normal volume as the 9th most active stock, trading 146,000 contracts at 68% calls.  The October $70 calls trade over 7000 contracts,  many of them trading at the ASK.

Volatility fell Friday as the VIX lost more than 4%, down to $12.09.  The drop last week was a non eventful $.11, with the high Tuesday at $13.41 serving as near term resistance. The volume was low at 370,000 VIX contracts, about 70% of the normal action.  A 20,000 lot Nov $17/$27 call spread for about $1 led paper activity.

22 of the Dow 30 were green on a 68 point bump Friday for a .4% pop to 17,137.  Blue Chips led gainers last week up .23% with higher highs Thursday to push upward momentum.

Stocks to watch this morning include:

A weekend article in Barron’s has Boeing bouncing .5% this morning on a call shares could rise 20%.  BA is the Dow loss leader, down more than 8% in 2014

No soup for you has Cambell’s down nearly 2% in the pre-market after disappointing outlook

One day before the colossal epic giant big Apple event, shares are up .03%, below $100 at $99.35, with the record peak 4.5% above heading into the unveiling of the iPhone 6.

Overseas markets have Europe in focus with the FTSE in London down 1% and the DAX in Germany down .15% .  The Nikei in Japan is up .25% to start the new week.

Stock index futures prices are lower with the Emini S&P down 2 points.  The Dow futures stand -25 here this morning with an hour to go before the open of the cash stock market.

 

Stay tuned for more market updates from Alan Knuckman. See you here Tuesday for your Pre-Market Pulse…

 

DISCLAIMER:

“KeeneontheMarket.com” (“KOTM”) is not an investment advisor and is not registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory Authority. Further, owners, employees, agents or representatives of KOTM are not acting as investment advisors and might not be registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory. IMPORTANT NOTICE! No representation is being made that the use of this strategy or any system or trading methodology will generate profits. Past performance is not necessarily indicative of future results. There is substantial risk of loss associated with trading securities and options on equities. Only risk capital should be used to trade. Trading securities is not suitable for everyone. Disclaimer: Futures, Options, and Currency trading all have large potential rewards, but they also have large potential risk. You must be aware of the risks and be willing to accept them in order to invest in these markets. Don’t trade with money you can’t afford to lose. This website is neither a solicitation nor an offer to Buy/Sell futures, options, or currencies. No representation is being made that any individual, group, or entity will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results.

eBay Inc., is a global technology company. The Company enables commerce through three reportable segments: Marketplaces, Payments, and GSI. The Company by providing online platforms, tools and services to help individuals and small, medium and merchants around the globe engage in online and mobile commerce and payments, the Company can facilitate transactions.  EBAY is currently trading around $53.99 in a 52-week range of $48.06 – 59.70. The company’s stock has been underperforming the market this year with shares increasing -1.54% year-to-date. Today, a trader bought over 4353 EBAY Fri 9/5 53 Calls (Wkly) at $0.58. With the short duration of these contracts, the trade was most likely set up as a day trade. EBAY is trading lower in today’s session, but these calls are up over 60% as the stock trades off the lows of the day.

Unusual Option Activity:
We define unusual option activity as large block trades that represent a large percentage of daily option volume. The block trade is considered “unusual” if the option volume is above the average daily volume over the past 22 days. At KeeneOnTheMarket.com we scan and analyze order flow from all of the major options exchanges in order to identify any unusual option activity.

Analyzing unusual order flow gives traders a window into what the positions that large institutional players have. The majority of unusual option activity can be traced back to hedge funds, mutual funds, and other large institutions. Knowing where these institutions are placing their bets can be hugely advantageous for any trader. These institutions have informational and technological advantages that the average trader doesn’t have, and the amount of time and analysis that goes into every one of their trades is substantial. We offer this service through our 7 hour daily LIVE trading room http://bit.ly/1usQnKR or through the only Unique Unusual Options Activity Scanner: http://bit.ly/1sCSaws

Order flow can however at times be deceiving. One might logically thing that a large block buyer of calls is bullish on the underlying. This is not always the case. Remember that a large number of participants in the equity options market are hedgers. Long calls are a hedge against short stock, and long puts are a hedge against long stock. With this in mind we have developed a 7 step trading plan that helps filter out unusual option activity that will not provide actionable trade setups. It is by using this plan that we are able to identify the most significant unusual options activity trades every day.

The Trade:
Buying the EBAY Fri 9/5 53 Calls (Wkly) at $0.58

Risk: $58 per 1 lot

Greeks of this Trade:

Delta: Long
Gamma: Long
Theta: Short
Vega: Long

Foot Locker, Inc. (NYSE:FL), together with its subsidiaries, operates as a retailer of athletic footwear and apparel. The company operates in two segments, Athletic Stores and Direct-to-Customers. FL is currently trading around $57.25 in a 52-week range of $31.91-$57.90. The company’s stock has been outperforming the market this year with shares increasing 38.13% year-to-date. Options traders seem to think that this trend will continue as order flow in FL has shown a bullish bias, even as the stock flirts with 52-week highs. Today, traders bought over 5000 FL October 60 Calls for $.80. The stock stock is trading flat in today’s session, near it’s 52-week high.

Unusual Option Activity:
We define unusual option activity as large block trades that represent a large percentage of daily option volume. The block trade is considered “unusual” if the option volume is above the average daily volume over the past 22 days. At KeeneOnTheMarket.com we scan and analyze order flow from all of the major options exchanges in order to identify any unusual option activity.

Analyzing unusual order flow gives traders a window into what the positions that large institutional players have. The majority of unusual option activity can be traced back to hedge funds, mutual funds, and other large institutions. Knowing where these institutions are placing their bets can be hugely advantageous for any trader. These institutions have informational and technological advantages that the average trader doesn’t have, and the amount of time and analysis that goes into every one of their trades is substantial. We offer this service through our 7 hour daily LIVE trading room http://bit.ly/1usQnKR or through the only Unique Unusual Options Activity Scanner: http://bit.ly/1sCSaws

Order flow can however at times be deceiving. One might logically thing that a large block buyer of calls is bullish on the underlying. This is not always the case. Remember that a large number of participants in the equity options market are hedgers. Long calls are a hedge against short stock, and long puts are a hedge against long stock. With this in mind we have developed a 7 step trading plan that helps filter out unusual option activity that will not provide actionable trade setups. It is by using this plan that we are able to identify the most significant unusual options activity trades every day.

The Trade:
Buying the FL Oct 60 Calls for $.80

Risk: $80 per 1 lot

Targets: $.90, $1.00, $1.15 and $1.30

Greeks of this Trade:

Delta: Long
Gamma: Long
Theta: Short
Vega: Long

(Full disclosure: I am long Calls in FL)

Tesla (TSLA) has been upgraded by Stifel Nicolaus from a “Hold” to a “Buy” rating earlier this morning. James Albertine, analyst for the firm, set an aggressive price target at $400/share. According to Albertine, “TSLA appears to have carved out a defensible niche in the global market for luxury electric vehicles, and based on our recent tour of the Fremont, CA, facility, a sizable head start with respect to production. The key risk remains demand, in our view, but given (a) competitors’ apparent unwillingness to fully invest (resources/managerial autonomy), and (b) TSLA’s brand resilience in spite of high-profile accidents/fires/recalls, it seems demand deceleration may be a late decade call at the earliest.” Shares of Tesla gained 2.9% to $277.42 in morning trading.

TSLA tested into the Ichimoku cloud at around $275.40 this morning, and has continued to soar higher, with all indicators suggesting neutral to bullish outlook on the stock. There are no resistance levels to the upside, and based on the chart, our trader’s outlook on TSLA is neutral to bullish, with a price target at around $350.

According to The Information, a technology and business news provider, there has been speculation that Take-Two Interactive (TTWO) may be considering a movie based on their Grand Theft Auto game, a franchise which has experienced wild success in the last decade.  It has also been reported Activision may be in the process of forming an internal movie studio, and with the success of games-turned-movies like Resident Evil, the game-maker might as well get into the movie business for itself. Activsion also owns Blizzard, and that could be the real reason for the creation of this studio, attempting to ride the wave of success experienced by the Warcraft and Diablo franchises.

Whether or not this project goes through is another matter. CEO Bobby Kotick is still in talks to get the necessary executive talent, and Kotick himself has been worried that movies might burn-out customers from the franchises. Activision certainly isn’t commenting on the rumor at this stage. However, the company might be in a bind. Call of Duty sales have been steadily dropping, and there’s no guarantee that Skylanders will remain a cash cow forever. Mike Hickey, analyst at Benchmark, indicates that Activision’s alignment may also be related in part to its interest in exploring a tie-up. He believes acquiring Take-Two would be a “no brainer” for Activision, and has Buy ratings on both stocks.

Alibaba Group Holding Ltd’s [IPO-BABA.N], China’s biggest e-commerce operator, is scheduled to go public sometime in early September. The company accounts for over 80% of all online retail in China–a staggering market share that has investors excited.  Alibaba issued stock-based compensation worth $59 a share, which indicates a market value of $138 billion based on 2.34 billion shares outstanding as of June 30, according to the Aug. 27 filing. The share count includes preferred and unvested restricted shares. The company’s mobile platform is state-of-the art, with mobile transactions growing to 32.8%  from 27.4%. Its Taobao and Tmall platforms are innovating forces in the B2C and C2C sectors , as opposed to simply linking buyers-to-sellers in the traditional fashion. With an operating income over $1.1 billion last quarter, Alibaba brings in 42% more than both eBay and Amazon combined. Net income also tripled last quarter, mounting to $1.99 billion.

These numbers have investors excited, and with a 22.5% stake in the company, Yahoo (YHOO) has performed well since acquiring stake in Alibaba, up over 100% in the past few years. With the likely high demand for Alibaba shares, investors who miss the opportunity for direct exposure may opt to buy into YHOO as an Alibaba play. The internet search engine might see a pop in share price as the result, but some investors are exercising caution. Yahoo’s foreign presence in China presents political challenges in the communist state, which could jeopardize Alibaba’s ability to conduct business in a highly-censored political environment. Either way, we believe that the IPO will be a positive catalyst, moving YHOO higher in the near future.