A hot July cools off briefly on mixed GDP data but “manufactured” bargain-hunting has been the order of business intraday. As of 11:15 ET the SP-500 (SPY) is flat and back at the closely-watched and played 1100 resistance, umm support, uh no, resistance level.
A sneak peek or advance look at sure-to-change GDP data for Q2 sparked a stampede further below technical supports out-the-gate Friday morning. According to official reports, bulls spied selling the report were disappointed by just shy growth of 2.4% versus estimates of 2.5%.
On the other but related hand, Q1 GDP data was revised higher by 1% to 3.7% and more than offset the miss. However, investors could have been reacting to a trend in slower growth; which unfortunately appears to be the only thing growing of late with regards to the economy.
Intraday, back-to-back reports just minutes apart did their part to help manufacture a nice rally more than one percent off session lows and even capture positive turf ever-so-briefly. A stronger than expected expansion reading from the Chicago PMI of 62.3 versus Street views of 56.3 was the initial catalyst for inspiring bargain-hunting by investors.
Separately, a mostly in-line reading on sentiment helped with bulls final push into positive territory. Today’s final reading for July came in at 67.8 versus estimates of 67.5 and above the preliminary figure of 66.5.
One spot where bulls aren’t so quick to bounce back from is in the once firmly higher stock and option prices of First Solar (FSLR). The NASDAQ 100 component is off about 6.50% after the alternative energy upstart posted a $0.23 profit beat on earnings of $1.84 per share but disappointing investors with its in-line sales and reduced but now matching CapEx outlook for FY10.
At the same time that shares have taken a fairly decent-size hit, the At-The-Money straddle in August has seen a stiff enough volatility crush that’s compensated sellers of the spread. The win for that typically professional camp of traders comes despite the size of the larger-than-expected percentage decline.
Based on pre-event implied pricing, a daily expected move of about 3.5% which has been nearly doubled and roughly 13.25% through expiration were expected based on a 1SD confidence level.
In front of First Solar’s report premiums had been bid to one month highs of about 57%, priced in excess of 80% above both 10 and 20-SV of the underlying stock and slightly above a longer-term 100-SV reading of 55%.
Priced at roughly $15.25 mid market as of Thursday’s well-traded close and sporting very equal volume of 2,400 contracts apiece in the call and put, the August 135 straddle has lost $3.25 points and is changing hands at $12.00 intraday. With shares at 126.65, the new at-the-money 125 strike is priced at $9.70 mid market on implieds of 40%.
Elsewhere in the land of corporate confessionals, CVD Rio (VALE), the world’s largest steel and iron ore producer delivered a profit miss of $0.70 that fell short of estimates by four cents on lighter-than-expected revenues of $9.83B versus forecasts of $10.82B.
Nonetheless and despite a preponderance of bearish technicals, shares of VALE are up 1% and remain in a position of relative leadership. Straddle pricing and a possible pattern failure were approached earlier this morning in VALE in the latest Hot Shots “Straddling a Breakout Performance from Within.”
Chris Tyler
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.
