Midday Options Update: Market Volatility and Industry Insights

Strategic Insights -

The Dow Jones Industrial Average (DJIA) has fallen in the double-digit range, while the Nasdaq Composite (COMP) and the S&P 500 Index (SPX) are losing ground due to unfavorable data. The non-manufacturing index from the Institute for Supply Management (ISM) dropped to 53.3 in September, below the expected reading of 60 and the consensus estimate of 60. Additionally, the Energy Information Administration (EIA) reported that crude inventories decreased by 246,000 barrels, but gasoline and distillates inventories dropped more significantly.

Key Takeaways:

  • General Motors (GM) is selling its stake in Fuji Heavy Industries Ltd. and will receive $315 million from Toyota Motor to acquire an 8.7% interest.
  • Delphi (DPH) is preparing to file for bankruptcy as early as this week, depending on concessions from GM and the United Auto Workers union.
  • Apple Computer (AAPL) is unveiling its latest product, the video iPod, on October 12.
  • Wendy's International (WEN) reported a 5% decline in same-store sales for the third quarter due to high gas prices and hurricanes.
  • Avaya's (AV) option activity increased due to its agreement with ABN Amro to support the bank's migration to Internet Protocol (IP) telephony.
  • AV's shares are trading above their peak front-month call open interest at the 10 level and have broken through resistance at the 10-month moving average.
  • The company's Schaeffer's put/call open interest ratio (SOIR) is at a 6-month high, indicating a pessimistic extreme.
  • Short sellers have increased their positions in AV, but it would take less than four days to cover the shorted shares in case of good news.

Statistics:

  • Dow Jones Industrial Average (DJIA) has dropped 0.50 at 1:49 p.m. Eastern time.
  • S&P 500 Index (SPX) is down 0.61 percent.
  • Nasdaq Composite (COMP) has dropped 0.77 at 1:50 p.m. Eastern time.
  • 2,414,304 calls have changed hands compared to 2,000,620 puts, with a single-day put/call volume ratio of 0.82.
  • Avaya (AV) has seen a significant increase in option activity due to its agreement with ABN Amro.

Sources:

  • "The New York Times"
  • "The Wall Street Journal"
  • "The Institute for Supply Management (ISM)"
  • "The Energy Information Administration (EIA)"
  • "Schaeffer's Investment Research"
  • "Bernie Schaeffer's Option Advisor"
  • "Forbes"
  • "Barron's"