Global central bank easing now includes Australia. The reserve bank of Australia unexpectedly cut its cash rate 25 basis points to 3.25%. In Europe, there is speculation that Spain will soon ask for a bailout which implies that it will agree to aggressive austerity measures. The yield on Spain’s 10-yr note is 5.73% and their equity market is up by about 1.5% this morning.
Yesterday, 12.3M equity options traded vs. the year-to-date average of 14.8M. Monday’s are usually the slowest options trading day of the week. Among the most unusual trades, the put plays were 6 of the top 10 trades and 11 of the top 20 trades, likely hedging long stock going into earnings. When investors buy puts to hedge long stock positions going into earnings, there is a better than 50/50 chance the stocks will rise on the earnings announcement. Puts were purchased in LLTC (Oct 32s), MDR (Oct 12s), CYMI (Oct 45s), SAP (Oct 70s), ZMH (Oct 70s), and MAR (Oct 39s).MAR earnings are scheduled for tomorrow Oct 3 and LLTC earnings are on Oct 16.
Options market makers increased the positive net delta exposure to the market yesterday indicating a slightly more bullish stance. In Delta Airlines (DAL), market maker options activity swung sharply from bearish to bullish in the past few days. We opened a position in the December 10 calls yesterday. Similar bullish activity has been seen in U.S. Airways (LCC). In rarely traded Flir Systems, 19x the normal volume traded with the action concentrated in the Nov 22 Calls. This trade implies at least a 10% upward move in the stock over the next six weeks. There is speculation that BBY founder Schulze will present a purchase offer before year end. There has been unusual flow in the BBY Nov 19 calls.