Brian's Monday recap: Rising tide of delta lifts the market

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By Brian Shepard

This week's scheduled economic/events calendar is the quietest week in 2013 so far. However, midmonth asset reallocation and the March expiration are on tap. CFTC data showed leveraged funds expanding their net long by over 74,000 contracts through last Tuesday. The banking sector and the small caps continued to be market leaders today. The [BKX] slowly climbed higher through the day as both investors and traders await details on the banks’ capital plans, a la dividends or stock purchases. The last few weeks have seen the biggest pace of U.S. buyback announcements in the overall markets over the past three years.

Collective Intelligence! From MLCO: "As of close on 8 Mar 2013, the S&P 500 front-month (15 Mar 2013) option contracts have a $211.0 billion delta (exercise probability) weighted open interest towards calls. This is the largest call imbalance we have seen one week prior to a triple witching option expiration since our data began in September 1997. Large call imbalances have historically produced positive returns for the S&P 500 over the option expiry week."

An account just bought to close the Mar 1500 calls to sell the May 1550 calls 8k times. This created approx $600m notional deltas to buy, helping to push us higher here. Recall that 11 of the past 14 expiration weeks have finished the week higher, mainly attributed to overwriting flow providing a bid to the market - posted at (12:42CT) 1249.50 high in the SPM.

“Market Wizards” Marty Schwartz aka Pit Bull: Trading rule, look for a low the Thursday/Friday the week before the expiration. This week's scheduled economic/events calendar should be the quietest week in 2013 so far. However, we do have the mid-month asset reallocation and the March expiration on tap.

Yes, We’re Confident, But Who Knows Why http://nyti.ms/XwEliV

Illinois broke federal securities laws in misstating the true health of the state's depleted pension funds when going out onto the bond market between 2005 and early 2009, the Securities and Exchange Commission announced Monday.

Don’t miss this guy > @princetontrader aka Mike V posted his Webcast http://t.co/HN0n99CeOU Pivots http://t.co/xVB078tB6K At (08:52CT) Mike posted his vol windows ES: 1547.75 x 1538.25 and NQ: 2804.75 x 2784.50

Kathy has had some very good calls! Charts posted by Kathy Garber @tbg4321. AAPL http://screencast.com/t/NUaNsa5LM6vt DAX http://screencast.com/t/OEaHP0ps DX http://screencast.com/t/3dH6F6Lpb CL http://screencast.com/t/1vw2tzvpX0 NQ http://screencast.com/t/sPahuTE4 ES http://screencast.com/t/Xs7fZq1k16S CL approaching Bullish Bat PRZ 91.11, premkt chart: http://screencast.com/t/1vw2tzvpX0

During the Globex session 224k ESM and 700 SPM traded, trading range was 1540.60 – 1545.00. Friday’s regular trading hours (RTH’s), pit session trading range was 1546.90 – 1537.20 before settling at 1544.50, up 6.8 handles.

Today’s SPM regular trading hours opening range was 1544.00 – 1543.50, traded 1542.10 and up to 1544.50 in the opening 30 minutes in light volume. Just when you thought it couldn’t get any worse, that 2.4 trading range lasted until 9:50CT while the 30yr bond had a daily trading range of only 6 ticks 141.01-141.07. [GOOG] was up about $5 trading $836 area, but appears to be no longer be leading to the upside and [AAPL] was making new lows down $6 to $425.50 area. The SPM was trying to extend the early RTH's 2.4 handle range and did so by a tick before flopping back to midrange and holding. By 10:08 1544.70 new high followed by 1444.80 … as small stops took us up to 1545.70 as the dollar gave up premarket gains. The VIX took out the Feb. 19 low and traded below 12 -- multi-year lows not seen since April 2007. The Nasdaq was slightly in the green as [AAPL] reversed the early losses leading up 12:00 and the SPM traded a new high of 1548.00, up 3.5 handles.

The grinding higher trade continued as the SPM traded a new high at 1549.50 by 1:13 and held the 1548 area on the fade. The 1550 level was briefly breached, trading 1550.20 by 1:48 and slowly fading back to 1549, then 1447.50 area just before the 2:45 closing imbalance was posted. The closing imbalance showed the broader market with a small $170mil to buy and the SPM traded back up to the 1549.50 area, then printed a new daily at 1550.50, cash close traded 1550.27. On the 3:15 futures close the June future settled at 1550.50, up 6 handles on the day.

Brian Shepard is a 20-year exchange member of the CME Group.
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