Schaeffer's Trading Floor Blog

Midday Market Stats: Dow Jones Industrial Average Poised for Third Straight Win

St. Jude Medical, Inc. sees post-earnings call trading, while Nimble Storage Inc enjoys an upgrade

by 4/16/2014 12:04 PM
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The Dow Jones Industrial Average (INDEXDJX:.DJI) jumped triple digits out of the gate, and was last seen 106 points, or 0.7%, higher at 16,368.53. A pair of solid tech-sector earnings reports from Intel Corporation (NASDAQ:INTC) and Yahoo! Inc. (NASDAQ:YHOO) has stoked the bullish flames, and an encouraging report on industrial production has overshadowed a slimmer-than-anticipated rise in March housing starts. This afternoon, Wall Street will digest a speech from Fed Chair Janet Yellen, as well as the central bank's Beige Book.

Here are a few noteworthy stats at midday:

  1. The equity put/call volume ratio across all 12 options exchanges is currently perched at 0.87, with calls outpacing puts. So far today, 3.74 million calls have changed hands, compared to 3.26 million puts.

  2. One name seeing heavy call trading today is heart device maker St. Jude Medical, Inc. (NYSE:STJ), which is down 3.2% at $61.17, despite reporting stronger-than-expected first-quarter earnings and lifting its full-year guidance. So far, nearly 86% of today's option volume has traded on the call side.

  3. The advance/decline ratio on the New York Stock Exchange (NYSE) stands at 2.67, with advancing stocks more than doubling declining issues.

  4. The biggest upward mover on the exchange so far today is data storage provider Nimble Storage Inc (NYSE:NMBL), which is up 8.6% at $33.74 after an upgrade to "buy" from "neutral" at UBS. (The brokerage firm, however, reduced its price target for NMBL to $45 from $53.)

  5. The CBOE Volatility Index (VIX) is down 0.9 point, or 5.6%, at 14.74. The "fear barometer" is on pace to end the holiday-shortened week with a 13.5% deficit.

  6. Today's put/call volume ratio on the iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX) stands at 1.34, with put volume outpacing call volume so far. The ETN has shed 1.7% at midday to $43.17.

View a real-time chart of the Dow Jones Industrial Average (INDEXDJX:.DJI).

Unusual Option Volume at Midday

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Buzz Stocks: General Motors Company, Starbucks Corporation, SodaStream International Ltd, and Google Inc

Today's stocks to watch in the news include GM, SBUX, SODA, and GOOGL

by 4/16/2014 9:25 AM
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Futures are pointed higher this morning, as investors digest the latest batch of earnings reports. In company news, here are some stocks to watch today:

  • General Motors Company (NYSE:GM) CEO Mary Barra made her first public appearance yesterday since taking part in a series of congressional hearings earlier this month. Barra said that GM has begun to fix the more than 2.6 million faulty cars that were linked to 13 deaths, and intends to launch a "global product integrity" unit to ensure the automaker meets the highest safety standards going forward. (The New York Times)

  • Amid political pressure over alleged tax avoidance, Starbucks Corporation (NASDAQ:SBUX) announced plans to relocate its European home office to London from Amsterdam later this year. "This move will mean we pay more tax in the U.K.," the coffee giant said. (BBC News)

  • SodaStream International Ltd (NASDAQ:SODA) shares are soaring in pre-market trading after a Calcalist report said the home carbonation issue may be considering selling a major stake to a larger competitor. Counted among the potential suitors are PepsiCo, Inc. (NYSE:PEP), Dr Pepper Snapple Group Inc. (NYSE:DPS), and SBUX. (Bloomberg Businessweek)

  • Google Inc (NASDAQ:GOOGL) unveiled its new Project Ara smartphone, which features an "endoskeleton" frame that can accommodate various hardware modules, each designed for a specific task. If all goes according to plan, GOOGL will manage the endoskeleton design, while third-party developers will make modules that will be sold on an online marketplace. (MarketWatch)

  • Also, Intel Corporation (NASDAQ:INTC), Bank of America Corp (NYSE:BAC), and Yahoo! Inc. (NASDAQ:YHOO) reported quarterly earnings. (Reuters; USA Today)

  • Finally, the IRS recently audited supermodel Gisele Bundchen. The former Victoria's Secret Angel responded by blaming Forbes -- which ranked Bundchen the highest paid model in the world, with $42 million in 2013 earnings -- for the audit, claiming the publication inflated her income. Regardless, the IRS found nothing amiss with her taxes. (Orlando Sentinel)

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Analyst Downgrades: UnitedHealth Group Inc., Transocean LTD, and Autodesk, Inc.

Analysts downwardly revised their ratings on UNH, RIG, and ADSK

by 4/16/2014 9:23 AM
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Analysts are weighing in today on health care services provider UnitedHealth Group Inc. (NYSE:UNH), offshore drilling concern Transocean LTD (NYSE:RIG), and software designer Autodesk, Inc. (NASDAQ:ADSK). Here's a quick roundup of today's bearish brokerage notes.

  • Citigroup downgraded UNH to "neutral" from "buy" ahead of the company's first-quarter earnings report tomorrow morning. In the options pits, meanwhile, short-term speculators have been more call-heavy than usual toward UnitedHealth Group Inc. -- which is up just 5.6% in 2014 to trade at $79.51. This is evidenced by the fact that the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.61 ranks in the bottom quartile of its 12-month range.

  • RIG -- which has shed about 16% since the start of the year to trade at $41.49 -- saw its price target dropped to $36 and $39 from $40 at Bernstein and UBS, respectively, this morning. Short interest on the stock climbed 29.3% during the past two reporting periods, and now accounts for 13.3% of RIG's available float. At the shares' average pace of trading, it would take more than eight sessions to cover these bearish bets.

  • Baird downwardly adjusted its position on nearly a dozen tech stocks this morning, including ADSK, which received a $4 price-target cut to $56 from the brokerage firm. Autodesk, Inc. -- which is sitting about 7% below its year-to-date breakeven level to trade at $46.82 -- sports a SOIR of 0.36, which ranks just 4 percentage points from a 12-month low. In other words, call open interest (relative to put open interest) is nearing annual-high levels among options expiring within the next three months.

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Analyst Upgrades: Intel Corporation, Yahoo! Inc., and Yelp Inc

Analysts upwardly revised their ratings on INTC, YHOO, and YELP

by 4/16/2014 9:19 AM
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Analysts are weighing in today on tech heavyweight Intel Corporation (NASDAQ:INTC), Internet issue Yahoo! Inc. (NASDAQ:YHOO), and online review forum Yelp Inc (NYSE:YELP). Here's a quick roundup of today's bullish brokerage notes.

  • A number of brokerage firms applauded INTC's first-quarter earnings win, including Deutsche Bank and Topeka Capital, which both lifted their price targets to $30 from $28 this morning. (B. Riley was the only firm to downwardly adjust its position, lowing its rating to "neutral" from "buy.") On the charts, Intel Corporation is up 13.9% from its Feb. 5 year-to-date low of $23.50 to trade at $26.77, and is poised for more gains in today's session. As such, INTC may receive more upgrades and/or price-target hikes in the near term, which could give the shares an extra boost. Currently, 17 of the 29 covering analysts maintain "hold" or worse ratings, while the average 12-month price target of $25.42 denotes a slight discount to the shares' current price.

  • Meanwhile, a handful of brokerage firms weighed in on YHOO's first-quarter revenue growth. This includes Susquehanna, which raised its price target by $3 to $42, and Jefferies, which resumed coverage on the stock with a "buy" rating and a price target of $50. (CRT Capital, on the other hand, cut its price target by $2 to $45.) Year-over-year, Yahoo! Inc. is up 43.8% to trade at $34.21, and is looking at a potential 8% gain out of the gate this morning. Considering, 13 of the 27 covering analysts have dished out "hold" suggestions on YHOO, the door is wide open for more upgrades in the near future, which could create additional technical tailwinds.

  • Although YELP is down 38% from its March 5 record high of $101.75 to trade at $63.06, Citigroup upped its rating on the stock to "buy" from "neutral" this morning. Meanwhile, in Yelp Inc's options pits, short-term speculators are choosing calls over puts at a greater-than-usual rate, as the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.59 ranks lower than 79% of comparable readings from the past year.

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The Well-Timed $11 Million VIX Bet

Breaking down yesterday's purchase of 100,000 VIX July 22 calls

by 4/16/2014 7:23 AM
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It's 9:55 a.m. ET yesterday, and the markets look like a nice shade of green. And then I get this in an email.

"VIX Jul 22c 100,000 bot for 1.10."

In English, that says a trader bought 100,000 CBOE Volatility Index (VIX) July 22 calls for $1.10. As in, $11 million worth of July VIX calls.

July VIX hovered in the low 17s in early trading on Tuesday, meaning that these calls were about $5 out of the money when they traded.

The buyer timed his VIX purchase quite well. Here's how the market looked yesterday morning.

One-Minute Chart of the SPDR S&P 500 ETF Trust, 4/15/14
One-minute chart of SPY for April 15, 2014
Chart courtesy of TD Ameritrade

Pretty good timing on these VIX calls. The proceeded to drop about $1.50 in pretty much a straight line over the next half hour, then another $0.50 a half-hour later.

Someone's bunny has a good nose!

Generally speaking, we tend to overreact to large VIX call purchases. I say that because they happen all the time. The open interest in July 20 calls is 343,561, for example, and they've probably never been anything but out-of-the-money calls. The general consensus is that some very large players use VIX calls as portfolio hedges and we have to put the size of their dollar commitments into proper perspective. That $11 million might represent a small part of the overall portfolio. So we shouldn't just assume this is a smart-money guy front-running the market. Or a contra-tell either, on the theory that it's a panic-stricken market long. Or maybe just someone who now has tons of ammo to fade general market weakness.

But having said that yowza, what great timing on that purchase, at least as far as the market action went. As for the calls themselves, they only rallied 10-15 cents or so, but I guess that's not exactly chump change making 10% on an $11 million "investment." I strongly doubt they ever buy these for the flip; rather, it's some combo of insurance and a hedge against future bullish market plays.

It's tough to advise anyone to not get carried away with interpreting VIX call purchases after seeing this one. I would still advise it, though, if for no other reason than the fact that virtually every large trade here involves owning dollar cheap VIX paper that figures to explode on a future VIX rally. And by and large, those bets have worked very poorly over the last five years. We just notice the very good trades and conveniently forget the many bad ones that preceded it.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.

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