An interesting divergence occurred today…despite the 4% drop, the put/call ratio barely budged, only gaining a few hundredths of a point to end at 1.21.

What to make of this?  My take is that people aren’t panicking.  Afterall, we’re up a boatload % since the 666-bottom, so a one-day sell-off does not a top make.  If this bull run is to continue, some consolidation action is to be expected.  This obviously makes no guarantees of where we’re heading tomorrow (especially since the reading continues to be in ‘the chop’), so perhaps this optimism is unwarranted.

As far as the virtual trades…the SPY 84. calls gave back all their gains as they stopped out on the morning gap down.  Since the put/call ratio is such a short-term indicator, I’m thinking these trades should get closed out on the first profitable market close.

Individual Items:

• Just FYI:  the CBOE set a new record for daily volume on Friday.  Over 4.5mil contracts traded, beating the old record from July!
• AAPL, AMZN, DD, KO, MSFT, WFC volatilities flat heading into respective earnings announcements, suggesting that the options market is expecting no real surprises…  High put volume seen in WFC, which is not surprising after BAC’s numbers.
• Daily crop of buyout rumors:  AMSC, TSL
• JAVA volatility collapses on the buyout deal by Oracle.  Easy opportunities here, depending on whether you believe that a deal will actually go ahead this time…
• Tremendous volume in CDNS May09 5. calls (almost no action at any other strikes/expirations).  $20k worth of speculation?

DP Buys:

In addition to finally getting some STP puts (buy point under $14), I opened a credit put backspread in AAPL ahead of Wednesday’s earnings.  The backspread involves selling an ATM option and buying 2 or more OTM options of the same expiration.  Here’s the risk profile for selling 1 AAPL May 125. put and buying 2 115. puts:

Good profits should get realized to the downside, but since the spread was opened for a credit, we make money even if the trade goes against us.  Breakeven points (@ expiration) are $105.85 and $124.14, but I will only hold that long if the AAPL bulls come back.

So obviously I’m betting on an EPS sell-off…let’s call it a hunch – a hunch based on the traditional conservative nature of their announcements, plus recent market share losses to PCs…and you never know when the next Jobs health-scare pops up.

As stated yesterday, I was eying an earnings trade in POT (rather appropriate for 4/20, no?)…that’s still viable and perhaps even more attractive as its volatility continues to decline…