Some of the more notable action from today’s market:
- The VIX is spiking over 5% as investors reach for protection. The yo-yo in the VIX over the last few days is a clear sign of the pure confusion that is the market at this juncture.
- Goldman Sachs added Ericsson to their conviction buy list. They noted the end of the global capex cycle downturn and stronger than expected GDP growth in Europe as the main drivers.
- Amazon (AMZN) was upgrade by just about every firm on the street after their numbers shocked analysts. FBR and Benchmark upgrade the stock to a buy with price targets of $130 and $143.
Options activity was very heavy in the name this morning:
AMZN – Amazon.com, Inc. – Shares of the e-tailer exploded to the highest level in five years following third-quarter earnings. Amazon reported a 28% increase in sales for the quarter and proffered fourth-quarter guidance that far exceeded previous analyst expectations. Shares of AMZN are trading higher by nearly 21% to $112.89 as of 9:50 am (EDT). Option traders exchanged upwards of 101,000 contracts within the first 20 minutes of the trading day. Implied volatility on the stock plummeted 23% this morning to approximately 36%. Today’s volatility reading is a scant 1% above the 52-week low of 35% for AMZN attained back on September 11, 2009.
- PNC was upgraded to outperform at Wells Fargo.
- Calls were very active in Microsoft after their better than expected results:
MSFT – Microsoft Corp. – Investors are piling into call options on the world’s largest software maker following first-quarter earnings. The firm exceeded average analyst expectations of 32 per share by posting profits of 40 cents per share for the quarter. Shares of MSFT surged to a new 52-week of $29.20 – a 9.8% increase over the stock’s closing price – at the start of the trading day. Currently shares are slightly lower, though still up 7% to $28.44. Call options are the clear favorite with approximately 45,000 calls purchased at the November 30 strike for an average premium of 35 cents per contract. Approximately 84,400 call options traded hands at that strike on paltry existing open interest of just 11,542 lots. Investors buying these options expect the stock to rise another 7% by expiration next month – a bullish sign for the tech-sector bellwether. Traders may also be looking to bank a little intra-day buck before heading into the weekend. Early-bird call-buyers – at the November 30 strike for example – can easily take profits before the closing bell given the 280% increase in option premium at that strike. Other investors may be taking advantage of the shrinkage in implied volatility on the stock – down 20.47% to 23.08%.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.