On Wednesday, I wrote “As of Wednesday’s close I would be leaning between $645 and $650 for Friday’s closing price in AAPL.  Bingo – AAPL closed on Friday at $645.57, a level that basically was drawn as the line in the sand early during Friday’s session.  Initially, in an effort to test the upward boundary prices moved to session and 52 week highs at $651. 26, and then quickly to session lows at $644.47 as the highs were soundly rejected and $645 was defended for the balance of the day.  Options expiration added strong 2-way trade as volume continued to be impressive.  

Check out Friday’s volumes versus closing open interest for the June weeklies that expired: Red indicates a decrease and Green indicates an increase in outstanding contracts from Wednesday’s numbers.

CALLS                              STRIKE                                  PUTS

 Volume               Open Interest                                      Volume            Open Interest

AAPL has continued to be the place to trade either as an equity day trader or an options trader.  Solid 2-way trade reigned supreme providing plenty of opportunities for all.  The rejection of Friday’s highs leans towards the “fireworks’ being over for now in AAPL.  The post split rally may be much more tame in terms of intraday ranges than what has been seen in the lead up to the split.  Volumes are likely to remain high as adjustments are made to existing positions.  Check out today’s chart on $APPL for trades and discussion.

The action over in the broader indexes was far more muted in terms of 2-way trade.  The indexes opened higher remained higher and were hard pressed to find any sellers willing to reject new highs.  I suppose we can say that the sellers were the smarter traders on Friday – allowing the buyers to come to them instead of racing to hit bids.  With volatility getting smashed all session there wasn’t any need to hurry to hedge.  The after the close push to additional new session, all time, and recovery highs was interesting.  The fifteen minutes after the closing bell is usually when most funds trade (hedge) the net positions that result in either buying or selling the equivalent monetary value in contracts for the futures.  The SPX and NDX being the more popular.  From the tape action I would say that funds had more money coming in than being redeemed at the new highs.  Or some of the larger players in equities  were anticipating traders to come out of expiration net buyers on Monday.

Volumes perked up here and there, but nothing to get overly excited about.  AAPL traded 12.5 million shares, which is at the upper end of its range.  SPY’s put in a good showing at the SPX cruised to another “new all time high!”  It was interesting to see the volume come in above 1945 in the futures.  I attributed much of that to the index arb unwinding June positions.  Interesting also suggests that the arb traders are not in earnest rolling positions to September at the same pace – at least not yet.  It will get interesting, (no pun intended) as traders expand and contract premium searching for the buy or sell triggers.  A landslide sell off could be produced if the June or September future trades at a deep discount to the cash.  Unfortunately it continues to trade more towards a premium producing more buy support for the rally.  The basis for the stand off is what continues to sit firmly at the top of the heap in terms sensitivity to price change and that is interest rates.

Start there and work down to figure out the correlations of interest rates to ALL other markets.  The cost of money, the search for yield, and volume will always dominate price movement.

It is not too much of a stretch then, to understand how this works into the equation of a product’s value at some point in the future.  Remember to add the time factor as an amount of interest either received or paid.  When there is a change in interest rates via a rate cut, theoretically money is cheaper to borrow and then lend it back out via an arbitrage.  Therefore when the future trades at a deep discount to the cash (stocks) – the arbitrage is to buy futures and sell stocks.  Conversely when the futures trade at a premium to the cash (basket of stocks) – the arbitrage is to sell futures and buy stocks.

A good point to bear in mind when trading is that there are different calculations for fair value and several different baskets of stocks that have been put together by crafty and talented traders and programmers.  Having them operating at various times and at various positions in the bull and bear cycle can present a more deceptive picture as to what the underlying positions really are.  Let’s face it everyone always wants to know what the big boys are doing.  How are the TBTF firms positioning themselves – long or short stocks, long or short interest rates, etc.

It isn’t often that as traders we get the opportunity to witness historic highs in equities prices, historic lows in interest rates, unprecedented levels of debt backed by the faith and good credit of the United States government, being sold as US dollar denominated fiat currency within a geopolitical hot bed of potential aggression and land grabs over oil.  Yes, it really does always fall back to the same agenda – the value of the US dollar, interest rates, and natural resources as it flows in and out of the supply/demand factor and what we are willing to pay for it?  What are we willing to do, (to others and ourselves), in order to get it and protect it all in the name of the homeland security.

The situation in the Ukraine is far from over and is becoming increasingly more clear that border concerns stretch from the Black Sea to the Baltic Sea, thus far.  Somehow though it has been erased from the front pages of the news and of our minds.  Replaced with thoughts of summer doldrums, taking a month off and heading to the lake, and getting some rest.  Don’t be lulled into complacency it won’t pay off –

Trading the number remains key to being able to reduce and separate the “noise” from opportunity.  This takes knowing and executing a well-defined strategy and allows you to see opportunities amongst the “chaos” and by trusting the mechanics of your strategy, be able to take advantage of them. 

Opportunity continues to knock on our doors.  While it doesn’t come without risk, risk can be defined and more manageable. Volatility and broad moves are exactly what a day trader desires and being able to respond without questioning is a luxury many are unaware of.