Midday Options Update: Market Reactions to Fed Chairman Alan Greenspan's Comments and Other Key Developments

Strategic Insights -

Markets reacted negatively to Federal Reserve Chairman Alan Greenspan's comments on the housing boom at a Fed policy conference, with homebuilding stocks declining. Greenspan's remarks highlighted the economic imbalance caused by low risk premiums, warning that asset values could fall if investors demand higher interest rates. Meanwhile, crude oil prices reached a new intraday high, nearing $68 per barrel, amid concerns about Hurricane Katrina's potential impact on production. Key developments include General Motors extending its employee-pricing plan promotion, Hewlett-Packard allocating $4 billion to buy back its common stock, and the Securities and Exchange Commission conducting an informal inquiry into Pixar Animation Studios.

Key Takeaways:

  • Markets declined after Greenspan's comments on the housing boom, with homebuilding stocks such as Toll Brothers, KB Homes, and Beazer Homes falling.
  • Greenspan warned that low risk premiums could lead to asset value declines, highlighting an economic imbalance.
  • Crude oil prices reached a new intraday high, nearing $68 per barrel, amid concerns about Hurricane Katrina's potential impact on production.
  • General Motors extended its employee-pricing plan promotion, which had been scheduled to end on September 6 and is expected to continue until October 7.
  • Hewlett-Packard will allocate $4 billion to buy back its common stock, using share repurchases as a method of returning cash to its shareholders.
  • The Securities and Exchange Commission is conducting an informal inquiry into Pixar Animation Studios over heavy returns of its film, The Incredibles.
  • Merck may consider settling some of the 5,000 pending Vioxx-related cases against it, following a $253 million award to a Texas widow.
  • American International Group (AIG) teeters on the precipice of becoming an underperformer, with optimism from options players potentially being a bearish indicator.

Statistics:

  • 1,498,496 calls were traded compared to 1,283,743 puts, resulting in a put/call volume ratio of 0.85.
  • The Dow Jones Industrial Average (DJIA) lost 0.51%, while the S&P 500 Index (SPX) declined 0.58%, and the Nasdaq Composite (COMP) fell 0.63%.
  • The CBOE's equity put/call volume ratio was 1.00.

Sources:

  • SchaeffersResearch.com
  • The Wall Street Journal
  • Forbes
  • Barron's