December 5th Market Wrap Up

Broad indexes saw some volatile trading today with the morning session breeding profits for the bears and the bulls taking over the afternoon bringing the DOW up over triple digits. We closed a bit off session highs but the reason for the rally off the lows was a report stating that as many as 40 Republicans are joining the bipartisan efforts on budgeting constraints and tax issues.

Apple AAPL was the source of much of the commotion today after several clearing firms raised their margin requirements on the stock itself. If you think about the leverage used in this name as the most widely held stock across all types of accounts, institutional or retail, raising the margin needed to purchase shares could damper position sizes. Out of the money weekly put options expiring December 7th soared today with the $550 Put experiencing the most volume with over 45K contracts traded. Strike prices from the $560 all the way down to the $500 puts were up anywhere from 1000% to 3000%. The stock was able to retrace all the way back into the gap area that was put in on November 19th. Watch for even more volatility as we head into the weekend.

Bank of America BAC crushed through it's $10 level that it's been using as resistance for the last year and never looked back. The stock was up about 5.6% and closing just under $10.50. The volume in the $10 weekly Calls expiring this Friday shot through the roof yesterday, possibly hinting towards the possibility of the stock breaking $10 during today's trading session. On top of the 40K contracts traded yesterday, the $10 weekly Call traded over $50K contracts today and the $10.50 Weekly traded just under 100K contracts! Percentage gains on these Options continued to rise throughout the day as the stock completely bypassed the earlier morning weakness and pushed higher all the way into the close.

Let's break out more details on the Bank of America trade today...

http://www.sanglucci.com/trading-update-december-5th/bac-16/

The interesting thing about the move in this Financial bell-weather today was that it managed to push significantly through a heavy resistance level during a bearish period in the markets. Until about 11 AM, the broad indexes were selling off with solid conviction and short trades were plentiful. Usually, the Financials trade directly with the markets and, as seen in the above chart, that was not the case today (although Goldman Sachs GS & JP Morgan JPM remained weak until later in the session).

http://www.sanglucci.com/trading-update-december-5th/bac-weekly-10-december-7th-call/

As you can see, this $10 weekly Call Option spiked up in volume at the end of the day yesterday and closed around $.08. This morning the stock gapped up and the Options opened up just under $.10. Once the stock barreled through $10 and pushed straight to $10.14, it was off to the races for this Option. It yielded substantial percentage gains for those quick enough to evaluate the strength of the buyers on the tape.