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Friday, February 6, 2009

Anther Bullish Sign in the Options Market

Two days in a row financials have been a major focus in the options market. The top ten contracts traded today were:

1: TGT JAN 35 CALL (LEAP 11)
2: TGT JAN 60 CALL (LEAP 11)
3: SPY FEB 85 PUT
4: BAC FEB 6 CALL
5: XLF FEB 11 CALL
6: SPY FEB 90 CALL
7: C FEB 3 PUT
8: BAC FEB 7.5 CALL
9: XLF MAR 9 CALL
10: XLF FEB 10 CALL

Target options are definitely a surprise over the last couple days. Especially the JAN'11 60 CALL. Other than those you have 6 of the 8 remaining betting the names go higher, and 6 of the 8 are financials with the other two (SPY) being the S&P 500 index tracker. Some news came out today that I thought would crush the market, but in an irrational market you can expect this. The good news is that the activity for calls has been rising steadily over the past week. The VIX is dropping like a rock, and the with the market holding above its November lows is a very good sign.

Wednesday we should know whether this rally is here to stay. I assume many are buying on the rumor(s) and waiting to sell on the news, which is why Wednesday is a critical day. I think if we finish next week higher from today's close, we should be poised for a short term rally.

Lets face it some terrible news came out this morning, and the market was able to shrug of the bad news and rally again. The street is certainly looking forward to this stimulus. Personally I think the Mark-to-Market rule change is more exciting. If that is done away with for even a short period, we could see a monster rally across the board.


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