Even though today's losses were kept to less than 0.4% on the major indices, today can still be considered a victory for the bears; both the S&P 500 and the Dow Jones Industrial Average have now recorded two consecutive down days for the first time in over three weeks. More importantly, today's closing prices were below Friday's session lows, which extends the key reversal and moves the technical picture toward a more negative light. The charts are actually putting some resistance levels in place; rallies will now give investors reason for taking profits and bears entry points to launch new shorts. The VIX rose 4.5% to 11.60 its highest close in three weeks. The put/call ratio jumped to 1.10, well above the 0.67 20-day moving average.
Among the most active options was aluminum products manufacturer Novelis (NVL - commentary - Cramer's Take) which accepted an offer from India's Hindalco. This was a much-rumored takeover, and shares climbed some 30% in the prior month, but the $44.90 price tag still represented a 15% premium over Friday's close. The Novelis options had been pricing in about a $41 price, so even as implied volatility of the options collapsed, the February and March $40 calls were up some $3 and $2, respectively on the day.
Active implied volatility gainers included NutriSystem (NTRI - commentary - Cramer's Take), whose IV rose 17% as shares sank 4% to a 10-month low.
Volatility for Nymex (NMX - commentary - Cramer's Take) moved 15% higher as the stock slipped 3% in general weakness in the shares of the publicly traded exchanges.
Steven Smith Blog First Dip Will Test Bull Mettle 2/12/2007 9:08 AM EST Options gauges could shed light on investor sentiment.
Steven Smith writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. 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.To read more of Steve Smith's options ideas take a free trial to TheStreet.com Options Alerts.
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