Bulls Find Their Legs

No two ways to take today's rally: It was impressive. And the S&P 500 Index closing above not only 1490 but 1500 puts bulls, if not in charge, certainly ahead of the bears.

The question is whether today's rally today stole the thunder from Friday in anticipation of a strong jobs number and the Fed rate cut next week, making this an opportunity for the bears to dig in their heels and reload their short positions.

I'm fairly flummoxed. Wednesday I started to peel off the in-the-money long portion of a bullish butterfly spread I had in the Spyder Trust (SPY - commentary - Cramer's Take) for the Options Alerts model portfolio. This was supposed to be a flier against my inventory of puts when the SPY was down at the 144 level, but now I need to be concerned that I'll have a negative delta and the possibility of incurring loss, albeit it would be limited because I kept the number of long contracts equal to the number short, if the SPY rises above $153 a share.

Of course, contracts on the housing and the homebuilder index (HGX) topped the most active option list. But I think I've said enough today about that situation.

I was a little surprised at how weak retail was at the open, but it did recover in the afternoon as it was apparently swept up with the rest of the market. But traders seemed to use the late-day rally as an opportunity to buy puts, especially on names such as J.C. Penney (JCP - commentary - Cramer's Take), which reported disappointing same-store sales numbers.

Notable trading activity occurred in Fording Canadian Coal (FDG - commentary - Cramer's Take) as its shares surged some 12% and its options over traded at 5 times the average daily volume today on news it has hired an investment bank to explore divesting some of its mine holdings and otherwise "explore strategic alternatives." The active strikes were the December and January $40 calls, which traded 2,200 and 1,600 contracts, respectively.

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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.

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