Apple and ICE and a Snowflake or Two

The overall feeling heading into earnings remains rather sanguine; investors claim to expect a pullback, but option activity doesn't indicate much downside protection is being put in place. Wednesday's afternoon rally helped the VIX ease 2% to 11.80. The put/call ratio, which hit 0.98 at midday, finished at 0.78. That helped push the put/call's 10-day moving average up to 0.63. And the latest Chartcraft Investor's Intelligence survey showed that bulls actually increased, to 55.2% from 54.3% last week, while bears dropped 20.09% to give us one of the widest spreads in six four months.

Once again Wednesday, Apple (AAPL - commentary - Cramer's Take) options were among the most active. Shares gained another 4% in the wake of the company's announcement about the iPhone. That surge came even though it turns out Apple might not get the right to that name for the device.

I doubt investors will fret much over the trademark lawsuit filed by Cisco (CSCO - commentary - Cramer's Take) this morning. Maybe Apple can turn it into a marketing bonanza and run a naming contest. My vote: "iCan't believe iPaid $499 for myPhone and still have nothing to say."

Publicly traded exchanges such as NYSE Group (NYX - commentary - Cramer's Take) and Chicago Mercantile (CME - commentary - Cramer's Take) had a big day during the last session. But the real monster has become the IntercontinentalExchange (ICE - commentary - Cramer's Take). Shares of the electronic energy exchange added another 10% to reach $130 Wednesday, giving the name a gain of some 35% in the past three weeks.

I doubt IntercontinentalExchange will simply settle here, so this is a good candidate for getting long gamma. With implied volatility still relatively low, my approach might be to short stock and buy calls on a ratio that starts with a slightly bearish bias but ensures that the position gets longer or more bullish if the stock keeps going higher.

Energy sector issues such as ExxonMobil (XOM - commentary - Cramer's Take) and ConocoPhillips (COP - commentary - Cramer's Take) remain under pressure. Option activity in the group remains robust; implied volatility rose again across the sector and now stands at 48%, which is near a 52-week high.

I'm starting to think of selling some put spreads in the group to take in some premium on the belief that prices should stabilize, given that three snowflakes were spotted in New York yesterday morning.

In keeping with TSC's editorial policy, Steven Smith doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships.

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Steven Smith writes regularly for TheStreet.com. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He appreciates your feedback; click here to send him an email.

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