After a rocky week the major indexes can't seem to agree on a direction. Economic issues remain mixed but the Fed has made it clear the next rate move will probably be a rate hike. That does not seem to be worrying traders as long as the economy is recovering. However, the current state of the economy is still unknown with mixed earnings guidance still clouding the issue.
Wilshire 5000 Chart - Daily
The economics on Friday were positive and continued to cast doubt on the direction of the economy. The Chicago PMI came in at 49.1 and well over consensus of 48.5. Moody's Economy.com was predicting 47.5 and a retracement of gains made over the last two months. The PMI surprised analysts with a four-month high. The low was made back in February at 44.5. Anything under 50 is still in contraction territory but conditions are definitely improving. This is the first time the PMI has been under 50 for four months since the 2001 recession. New orders rose from 53.0 to 56.1 and backorders rose from 39.5 to 46.8. The employment index jumped from 35.2 to 41.2. On the downside the prices paid rose +4.6 to 87.5 and the highest level since June 2006. This inflation is slowly filtering into consumer prices and it will be a problem for the Fed.
The NAPM-NY report also rose slightly in May but you would need a magnifying glass to see it. The index rose only 0.2 to 419.8 but the good news was a halt to the four-month decline. The six-month outlook component spiked to 62 continuing its rebound from 44.2 in January. The current conditions component rallied back into expansion territory at 50.4 from its low of 37.6 in April. This was a positive report despite the microscopic gain in the headline number. However, in a special question added to the May survey 62% of firms said they expected slower profit growth during the remainder of 2008. We should not complain about slower growth when the other option is a decline.
The last reading on Consumer Sentiment for May was revised slightly from 59.5 to 59.8 but it was still a 28-year low. Inflation expectations continued to rise with one-year inflation expectations now 5.2%. Five-year inflation expectations are now 3.4%. This is the highest level since 1996. The current conditions component rose 1.2 points from the preliminary reading. This may be grasping at straws but it could be a sign that consumers believe the worst is over. With some rebate checks already being cashed this could have provided the minor uptick in sentiment. Sentiment is heavily influenced by the price of food and energy. Food prices have actually risen faster than energy prices over the past year as evidenced by the CPI so it is surprising sentiment did not fall even further.
Personal Income rose +0.2% in April, a drop of -0.2% from March. Spending growth also fell from 0.4% to 0.2%. The core PCE deflator rose +0.1% and savings held steady at 0.7%. Purchases of high dollar items like large flat screen TVs has slowed significantly. Real durable goods spending has risen only once in the last seven months and has fallen -3.6% over that period. Income has slowed as the job market weakens. Consumers can no longer fall back on their home equity to cover the shortfalls.
The CEO of Public Service Electric and Gas (PEG) said on Friday that disconnects for non-payment of utility bills had risen sharply and payment delays were becoming very prevalent. When consumers can't pay their utility bills they are definitely in trouble. The CEO also said they wanted to hike gas prices 20% starting in October to cover the increased cost of natural gas. Prices have risen from $7 to $11-$13 during heating season. The average customer bill would rise +$28.60 per month.
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Next week the economic calendar begins with the May ISM Index on Monday. Expectations are for another month in contraction territory at 48.5. That would be flat with the 48.6 seen in April. Some analysts are expecting a further decline to something in the 47.0 range. If the ISM remains in the current range that would mean the low of 48.3 back in February is still intact. In April the new orders were unchanged at 46.5 and its lowest level since the 2001 recession. This will be the number to watch on Monday's report. The ISM Services will be released on Wednesday and expectations are for 51.0 and only a point below April's 52.0 level.
The biggest report for the week is the Non-Farm Payrolls on Friday. Expectations are for a loss of 60,000 jobs. After three months of job losses over 75,000 per month we saw a minor 20,000 job loss in April. If jobs remain negative along with the ISM then the Fed will likely remain on the sidelines with no change in rates when they meet in three weeks on June 24th. There is almost no chance of another rate cut.
April Jobs Chart
On the stock front Dell's earnings and guidance energized tech stocks sending the Nasdaq to a 14 point gain for the day and a +78 point gain for the week. Semiconductors also rallied on the Dell news and the SOX closed up 15 points for the week or +3.7%. Dell rose +5% to $23.06 on their strong earnings but Marvell Technology (MRVL) beat them by a mile. Marvell earnings powered the stock to a 23% gain to close at $17.36. Dell said growth was at two-year highs with weakness in the U.S. being offset by strength in the international markets. Also helping to power the Nasdaq was another $2 gain in Apple (AAPL). Rumors are growing that Apple will announce the 3G iPhone over the next two weeks and availability will be immediate.
With May trading now in the record books the sectors fairing the worst were airlines at -18% thanks to $130 oil. Banks also lost traction and fell -8% along with a 5% decline in housing. Banks declined on fears that the Fed would be raising rates soon and on worries about the growing borrowings at the Fed's discount window. Borrowing on Wednesday hit $19.04 billion and average daily borrowings by banks rose to $15.95 billion and a new cycle high. This suggests the banking sector is still under a great deal of stress since borrowing at the discount window is considered a last resort. Borrowings by primary dealers averaged another $12.33 billion per day. Fed regulators closed a failed Minnesota bank called First Integrity and the FDIC was appointed as receiver. The bank was small with only $54 million in assets and $50 million in deposits but it underscored the worry about other failures to come. This was the 4th bank to fail in recent weeks. These worries have prompted a sell off in financials after the Fed backed rally lost steam.
Friday was a slow news day and volume was very anemic. Energy continued to be the focus after that $135 spike and drop back to $125 on Friday morning. Fears of change in rules by the Commodity Futures Trading Commission (CFTC) sparked a sell off on Thursday despite a multiyear drop in oil inventories. Crude inventory levels fell by -8.9 million barrels for the week ended May 23rd and pushing inventory levels to 9.7% below the same period in 2007. Inventories are at their lowest level since hurricane Katrina. Gasoline levels fell by -3.2 million barrels. Either of those numbers would have been good for a massive spike in price had it not been for the CFTC announcement they had been conducting a six month investigation into possible market manipulation by futures traders.
July Crude Futures Chart - Daily
The CFTC also said it was taking steps to improve the transparency of the energy futures markets. Some of those steps included monitoring the trading of U.S. futures traded on overseas exchanges and requiring traders to submit more detailed data regarding their index trading activities. This may have scared some players operating on the edge to bail with profits rather than be subject to some unexpected new rule change. There have been rumors for months that some sovereign funds from OPEC nations were behind the sudden ramp in oil prices. They have billions available to use for speculation or in concert to unobtrusively move the market. They can do it with relative obscurity from outside the U.S. by utilizing swaps with major U.S. banks and hide from position limits and from some reporting regulations. The total value of all open positions in crude futures was $174 billion on April 22nd. That is up from $17 billion in 2003. Even at $174 billion it would not take very much money to manipulate the price of oil since all you need to manipulate is the current month. That is only a fraction of the $174 billion and you need far less to buy a futures contract on margin.
How mad would the U.S. be to find that Iran and Venezuela might have joined together to manipulate the futures prices? It would be an ugly event with far reaching ramifications. We may never know what happened in the past because these complex trades leave few trails. New CFTC rules require significantly more reporting and identification of traders. The Acting Chairman said, "The agency continues to pursue one of its primary missions - to deter, detect and punish futures market manipulation." It may have just been fear that the CFTC would find evidence of somebody manipulating and those riding the coattails of the rally would be burned when the manipulation stopped. The chairman also said, "raising the margin requirements on commodity futures would be a dangerous idea and could send traders elsewhere." That could actually reduce the liquidity in the markets and increase volatility.
Whatever the reason the futures market saw significant selling on Thursday after the CFTC announcement was made. Support at $125 appears to have held and with hurricane season starting on Sunday I doubt prices will fall much further. Hurricane forecasters are predicting 9 hurricanes and odds are good at least one will be in the Gulf. If it happened to head for the oil patch we could easily see $135-$150 oil very quickly. Greenspan had to get his two cents in and remind everyone he is still alive, stirring up trouble and promoting his book. He said the rise in oil prices was part speculation and part supply and demand and prices will likely continue higher.
The Q1 earnings cycle is over and analysts are trying to refine their projections for the coming quarters. Estimates for Q2 have fallen since April 1st from a decline in earnings of -2% to -7%. Q3 estimates have fallen from +17.3% to +13.6%. Analysts say comparisons are favorable for Q3 because Q3-2007 is where the sharp decline in earnings began. For all of 2008 earnings are expected to fall from +13.5% growth to +8.5% if you include financials. If you eliminate financials that number rises from 8.5% to 11.6%. Energy is the only sector where estimates have increased going from 10% to 16%. Financials have fallen from -31% to -44%. Techs fared better with only a minor drop in estimates from 18% to 15%.
The dollar had a good week with a rise to 72.86 on the US Dollar Index. There is still strong resistance at 73.5 but traders are counting on those lows from April as being the bottom. With the next Fed move likely to be a rate hike and the economic indicators appearing to firm the dollar is more likely to move higher than lower.
US Dollar Index Chart
Sell in May? For the first two weeks in May I warned several times that we would not know if the sell in May crowd would appear until the week after expiration. Expiration was May 16th and starting on Monday May 19th the Dow fell -687 points from its high in only six days. There were plenty of events blamed for the decline but they could have just been coincidental. The good news was the rebound from those lows. There were plenty of buyers waiting for an entry point.
Dow Chart - Daily
The Dow was the weakest of the major indexes with only a minor +190 point rebound. Based on the Dow chart alone I would still be bearish on the markets. However, we know that stocks like GM, AIG, Citi and BAC have been a serious drag on the Dow but it may surprise you to know that Exxon (XOM) is also at a 3-week low. The Dow is struggling from its relatively narrow breadth of only 30 stocks. Support at 12500 needs to hold or the Dow will eventually tank the stronger Nasdaq. The Dow has a menacing chart with a potential double top at the 200-day average.
The S&P-500 has followed the Dow in its relative weakness primarily because of the influence of the financials on the index. 1395-1400 remains a pivot point with 1375 critical support.
S&P-500 Chart - Daily
Nasdaq Chart - Daily
The Nasdaq declined from 2551 to 2430 in the days following option expiration for a drop of -121 points. Unlike the Dow the Nasdaq rebounded +92 points to close at 2522 on Friday. Tech stocks, primarily led by the chip stocks, are on fire. This is unusual for this time of year and suggests a longer-term bullish bias.
The most bullish indicator for the broader market remains the small cap Russell-2000. The Russell declined to initial support at 730 and struggled to hold there for three days before starting a rebound that pushed it to its highest close in five months on Friday at 748.28. You read that right, the highest close in five months, a new relative high. That represents a 30 point rebound or +4.1% off last Friday's lows. When the Dow and Nasdaq sold off at Friday's close the Russell futures also took the plunge but immediately recovered to close at the highs for the day. Because the Russell is the sentiment indicator for fund managers this suggests they are expecting the markets to move higher. Specifically they believe the worst is over and they are willing to move into more risky investments.
Russell-2000 Chart - Daily
The setup for next week has a lot of qualifiers. If the dollar continues to rise then gold and possibly oil could decline. If oil rebounds then the S&P should follow it higher. If the momentum trade in oil has ended and support at $125 breaks then the S&P could follow it lower as energy stocks decline. The S&P is hostage to the three largest sectors of financials, energy and technology. Techs are not strong enough to rescue the S&P if oil rolls over. Financials are already in sell mode so 2 of 3 major sectors makes a majority and the S&P should decline on falling oil. S&P 1410 and 1420 are the key levels to watch if the S&P starts higher. A failure at 1375 would be a critical turning point. The critical point to watch on the Russell would be 750. A move over 750 would be a clear breakout and I would add to longs over 750.
The ISM and Jobs reports will also be key. A weaker than expected ISM could weaken market sentiment with the Fed already telling traders they are not going to cut rates again. Likewise the jobs report could be a negative for sentiment if it surprises to the downside with a loss of more than 60,000 jobs. If either or both reports come in better than expected they will confirm a rebounding economy and the Fed will no longer matter. That would help confirm the bullish bias the Russell is giving the market. Hurricane season starts on Sunday so expect to hear about it in the news and that could support oil prices. Tropical storm Arthur formed off the coast of Belize on Friday and appears headed to the Mexican side of the Gulf next week. That could get the oil speculation started once again.
Play Editor's note: Traders need to keep an eye on crude oil. It is as much a market mover as the major indices. If crude breaks down under $125 then the oil and oil services should follow. Since energy is such a large part of the S&P 500 then it could follow oil lower as well.
Peabody Energy - BTU - close: 73.92 change: +1.92 stop: 70.85
Why We Like It:
BUY CALL JUL 70.00 BTU-GN open interest= 200 current ask $7.90
Picked on June 01 at $ 73.92
Garmin Ltd. - GRMN - close: 48.65 chg: +1.07 stop: 44.95
Why We Like It:
BUY CALL JUL 45.00 GQR-GI open interest= 3395 current ask $5.60
Picked on June 01 at $ 48.65
Avalonbay - AVB - close: 101.20 change: -1.41 stop: 102.85
Why We Like It:
BUY PUT JUN 100.0 AVB-RT open interest= 527 current ask $2.60
BUY PUT JUL 100.0 AVB-ST open interest= 113 current ask $4.60
Picked on June 01 at $101.20
Kohls - KSS - close: 44.80 change: -0.53 stop: 45.65
Why We Like It:
BUY PUT JUN 45.00 KSS-RI open interest=22532 current ask $1.75
BUY PUT JUL 45.00 KSS-SI open interest= 5426 current ask $2.65
Picked on June 01 at $ 44.80
Harsco - HSC - close: 63.32 change: +0.68 stop: 60.45
HSC actually turned in a decent week. The stock rebounded from the $60.50 zone and is back to challenging the May highs. The question now is whether or not HSC can breakout past those May highs. If the major market averages continue to rally then HSC has a good chance it will hit new relative highs too. However, we're not suggesting new bullish positions in HSC at this time. Our target is the $64.50-65.00 range but more aggressive traders may want to aim higher.
Picked on May 01 at $ 60.38
iShares Russ.2000 - IWM - cls: 74.67 chg: +0.26 stop: 71.70 *new*
The small caps are actually out performing. The Russell 2000 set a new five-month closing high. The IWM still has resistance near $75.00 but the trend is bullish. We had been suggesting that more conservative traders may want to exit or take profits in the $74.50-75.00 zone. Right now our target is the $77.50-80.00 zone. We're not suggesting new positions at this time. We are inching up our stop loss toward last week's low. FYI: The Point & Figure chart's bullish price target has moved from $87 to $96.
Picked on April 28 at $ 72.55 *triggered
Martin Marietta - MLM - cls: 116.69 chg: -0.35 stop: 114.95
We want to reiterate our cautious comments on MLM. The stock has gone nowhere the last few days. Short-term technicals continue to worsen. Yet support at the $115 level is holding. We suggest more conservative traders just cut their losses now and exit early. We would not suggest new short-term bullish plays until MLM broke out over its 10-dma in the $118.80-119.00 range. We are close to pulling the plug and dropping this stock. Nimble traders could try and buy another dip or bounce near $115.00 but use a tight stop! Our target is the $123.50-124.00 zone. The P&F chart is bullish with a $158 target.
FYI: If you like MLM, another stock you may want to check out is VMC.
Picked on May 27 at $118.15
Natl. Oilwell Varco - NOV - cls: 83.32 chg: +2.44 stop: 78.69
NOV out performed the market and its peers in the oil sector on Friday. The stock posted a 3% gain by the closing bell. If we get the chance another dip in the $82-81 zone could be used as a new entry point. More conservative traders might want to tighten their stops closer to $80.00. Our target is the $88.50-90.00 zone. The P&F chart is bullish with a $105 target.
Picked on May 28 at $ 83.15
Oceaneering Intl. - OII - cls: 71.36 chg: +0.09 stop: 69.95
We have to remain cautious on OII. The oil service stocks did not bounce much on Friday. Shares of OII under performed the market and its peers. The stock looks poised to retest support near $70.00 soon. We would buy a bounce from $70.00 but use a tight stop loss. We have two targets. Our first target is $78.50. Our second target is $83.00.
Picked on May 28 at $ 73.36
Priceline.com - PCLN - close: 134.53 chg: +2.59 stop: 127.99 *new*
Last week was kind of a bumpy ride but the general trend in PCLN is still up. The stock added 1.9% on Friday and still looks set to run toward its highs. We would consider new positions here or on a dip near $132.50. We are inching up our stop loss to $127.99. Our target is the $139.50-140.00 zone.
Picked on May 27 at $132.75 *triggered
POSCO - PKX - close: 136.65 change: +1.56 stop: 129.75
PKX delivered a 5% gain last week. We remain bullish but if you're looking for a new entry point consider waiting for a dip in the $135-134 zone. Our target is the $143.00-145.00 range. This is an aggressive higher-risk play. PKX tends to gap open every morning as it adjusts to trade in Korea. Plus, the option spreads tend to be a little wide. FYI: The Point & Figure chart is bullish with a $212 target.
Picked on May 27 at $133.26
Molson-Coors Brewing - TAP - cls: 58.00 chg: +0.12 stop: 55.95 *new*
TAP has been coiling sideways all week so we're ready to see some upward momentum. We would consider buying dips to the $57.00-56.75 zone. However, we are adjusting our stop loss to $55.95. If you prefer to buy on momentum then wait for a new relative high (above 59.51). Our target is the $64.00-65.00 range. FYI: The P&F chart is bullish with a $69 target.
Picked on May 23 at $ 58.51 *triggered
3M Co. - MMM - close: 77.56 chg: -0.20 stop: 77.01
We are still waiting for MMM to breakdown under support near $75.00. Shares have a bearish trend of lower highs and many of the technical indicators are decaying. More aggressive traders might want to buy puts now with a stop loss above Thursday's high (78.20). We are going to wait. Our suggested trigger to buy puts is at $74.95. If triggered our first target is the $70.25-70.00 zone. Our secondary target is the $66.00-65.00 range. The P&F chart is bearish with a $69 target."
Picked on May xx at $ xx.xx <-- see TRIGGER
(What is a strangle? It's when a trader buys an out-of-the-money (OTM) call and an OTM put on the same stock. The strategy is neutral. You do not care what direction the stock moves as long as the move is big enough to make your investment profitable.)
Amgen Inc. - AMGN - close: 44.03 chg: +0.61 stop: n/a
AMGN has produced a minor rally heading into the ASCO conference this weekend. Shares seemed to stall just under technical resistance at the 100-dma near $44.25 on Friday. We are not suggesting new strangle positions at this time. We have suggested a July strangle and a slightly more aggressive June strangle. The options in the July strangle are the July $45 calls (AMQ-GI) and the July $40 puts (AMQ-SH). Our estimated cost for the July strangle was $1.65. We want to sell if either option hits $3.50. The options in the June strangle are the June $45.00 calls (AMQ-FI) and the June $40.00 puts (AMQ-RH). Our estimated cost on the June strangle was $0.56. We want to sell if either option hits $1.10 or more. June options expire in three weeks.
Picked on May 22 at $ 42.77
McDonald's - MCD - close: 59.32 chg: -0.16 stop: n/a
It looks like the oversold bounce in MCD is failing at the $60.00 level. This may actually be a spot to consider directional put plays with a stop above $60.00. However, for this strangle play, we are not suggesting new positions. Monday might bring some stock movement as MCD presents at a Goldman Sachs conference. The options we suggested were the June $62.50 calls (MCD-FZ) and the June $57.50 puts (MCD-RY). Our estimated cost was $1.10. We want to sell if either option hits $1.65 or higher. More aggressive traders may want to raise their target. Keep in mind that June options expire in less than four weeks and will see their premium erode more quickly.
Picked on May 18 at $ 60.53
Murphy Oil - MUR - close: 92.65 change: +0.50 stop: 91.85
Oil stocks continued to see volatility even though crude oil bounced on Friday. Shares of MUR dipped to $91.33 before bouncing. That was enough to hit our stop loss at $91.85. We would keep an eye on MUR for a pull back near $90.00 or its 50-dma as a potential entry point. Short-term the technicals are definitely suggesting more weakness ahead.
Picked on May 28 at $ 95.28 *stopped out 91.85
Exxon Mobil - XOM - close: 88.76 chg: -0.59 stop: 88.79
It's not looking good for XOM. The Wednesday bounce has failed and shares have broken down under its 200-dma. There is potential support at $88.00 and like we said earlier nimble traders may want to consider buying puts on a move under $88.00 or the exponential 200-dma near $87.50. XOM hit our stop loss on Friday at $88.79.
Picked on May 28 at $ 90.43
You're buying a far out-of-the-money (OTM) SPX call for under $3.00. Don't you remember something about options under $3.00 being priced in penny increments? You think you do.
You type in all the parameters of your options trade, including a limit price of $2.83, and click on "Preview Order." You're greeted with a warning similar to the one shown below:
Oops, maybe you remembered that $3.00 thing wrong. Or maybe options on the SPX aren't among those that trade in penny increments. Yet, a few days later, you're talking with a trading friend who tells you that he successfully entered an OTM bull call debit spread on the SPX with a debit price of $2.83.
So, what's up with the penny increments? What orders can you place for penny increments and what ones require decimal increments of $0.05 or higher?
Back in the summer of 2006, Securities and Exchange Commission Chairman Christopher Cox sent a letter to major U.S. options exchanges. That letter asked the options exchanges to start quoting options prices in penny increments rather than in increments of a nickel or dime. Not all options would be quoted in the new program, then slated to begin January 29, 2007. Instead, the program would be a sort of pilot program to try out the new pricing.
The program actually began January 26, 2007, the first day of the Penny Trading Pilot Program. The program chose a security that seemed to best approximate the average security to premier options quoted in penny increments. That security was Whole Foods Market (WFMI). Others were soon phased in, including options on Microsoft (MSFT) and General Electric (GE) the next week. Eventually, thirteen options classes were slated to be part of the pilot program, according to an SEC release.
Stocks had long traded in pennies, and market makers, of course, had also long been trading options in penny increments, but not quoting them in those increments. Nothing had prevented them from doing so at certain exchanges, as a SEC press release at the time noted. Those exchanges permitted trading in penny increments. It was just that none were quoting them that way. Some proponents of the new program felt that the tighter spreads would eliminate the order-flow payments some brokerages made to the exchanges.
Most retail traders thought options quotes in penny increments was a good idea, envisioning tighter spreads and perhaps fairer prices when forced to enter market orders. Some pundits worried that some factors related to the new quoting system would lead to more liquidity but less transparency and some hesitancy on the part of big money players to place trades. Some worried that the SEC was just putting a foot in the door of a program that would ultimately require quotes in penny increments for all options, and that just wasn't going to be workable for options on all securities. It wasn't workable to quote in pennies in illiquid instruments.
The pilot program saw results that might have been somewhat predictable in the first three issues tested. At first, spreads narrowed in WFMI options, but then options were soon being quoted in nickel and dime increments again. GE followed a somewhat similar pattern, but it took a while for spreads to widen in MSFT as quotes gravitated back to nickel and dime increments again. In the early days, market watchers concluded that the higher the volume and the more liquid the instrument, the more likely it was that the options would remain priced in penny increments, particularly near the at-the-money (ATM) strikes.
However, as I look at front-month options chain on WFMI, the first issue to have options quoted in penny increments, I see options being quoted in penny increments as many as three strikes on either side of the current price on the put side and throughout most of the chain on the call side. Spreads seemed to have narrowed again.
The first 13 issues included in the pilot program included WFMI, GE, MSFT, IWM, QQQQ, SMH, AMD, INTC, CAT, TXN, FLEX, SUNW, and A. In September, 2007, the program was expanded to include XXP, SPY, NYX, AAPL, CSCO, MO, XLF, DNDN, T, AMGN, C, YHOO, AMZN, QCOM, MOT, GM, RIMM, XLE, FCX, DJX, DIA, COP, OIH, and BMY.
Since the pilot program first began with those options in WFMI, the exchanges have gradually increased the securities in which options may trade in penny increments when the option is priced less than $3.00, although the program is still labeled a pilot program. On March 28, 2008, for example, the options industry expanded the list of eligible securities by 28. Those new securities included GS, CFC, BAC, EEM, MER, RIO, EMC, XOM, WMT, HD, VLO, AA, DELL, SNDK, PFE, EBAY, HAL, LEH, JPM, WM, F, TGT, AIG, NEM, VZ, MNX, SBUX, and BSC.
Traders can read about the program on the CBOE site at the following link: http://www.cboe.org/hybrid/pennypilot.aspx
What's the future of the pilot program? Will more securities eventually be added, including the SPX? Not if the CBOE has anything to do with it. In its "Penny Pilot Report-September 28, 2007 through January 31, 2008" to the SEC, the CBOE "expressed its concern that much of the data from the first nine months of the Pilot Program reflect negative consequences for the options industry" and said that the CBOE was "justifiably worried." The CBOE believes that some issues with options quoted in penny increments have suffered from decreased liquidity, volume and quote traffic.
Nevertheless, some brokerages such as Interactive Brokers are setting up an auction system that allows their customers to enter orders in penny increments on all equity options, not just on the issues included in the pilot program. See your specific broker for the conditions under which these orders can be submitted as well as for information on how they're filled or sent to the exchanges.
So, while traders might be able to enter orders for combination-type option
trades on the SPX in penny increments if the price is below $3.00, they're going
to have to wait a while until they can do so on single options for the SPX.
Today's Newsletter Notes: Market Wrap by Jim Brown, Trader's Corner by Linda
Pizza, and all other plays and content by the Option Investor staff.
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