The market had some positive earnings news and a jobless claim report that was not that bad. This news lead to some early optimism across the financial markets.
At one point this morning, the S&P 500 Index options (SPX) was up almost eight points, a touch above 0.75 percent. The volatility indexes were following suit.
SLOWING ACTION
Since the open though, the market has been slowing, grinding away at its gains, inching back toward unchanged. As of 9:30 a.m., SPX had cut its gains by more than half and was up just under three points.
I would not be shocked if the market dips into the negative; however, I do not see any major action happening until the Fed Beige Book is released this afternoon.
LOW VOLATILITY
The volatility indexes are currently at their lowest points since the Flash Crash in May. The iPath S&P 500 VIX Short-Term Futures ETN (VXX)—in my opinion the best quick gauge to access forward looking market volatility—is threatening to drop below $22, a signal that the markets fear of a “major event” is like our current moon, waning.
However, with tomorrow’s GDP and next Friday’s employment reports coming, I find the $22 level to be a little light, and am looking at ways to take advantage of VXX. (We put on two2 VXX plays at Option Pit that we are following during the morning Pit Reports and on the blog).
WORTH CHECKING OUT
On the interesting trade front, the major buyout activity surrounding Genzyme (GENZ) has produced all kinds of trades.
The speculation is that Sanofi (SNY) is going to buy out GENZ at a significant premium. There have been buyers of January $75 calls, as well as risk arbitrage guys buying put spreads against any long position they might have.
One trader unloaded a long August $75 call position and then doubled up buying the January $75 calls. This trader is betting that a deal is not imminent but will happen.
Based on his or her betting, if a deal is announced, I would be blown away if it was not at a hefty premium even with the recent runup. If a deal falls flat, GENZ is going to get slapped.