GO
Loading...

Halftime: Surprising Options Indicator

It is considered by many to be one of the most reliable indicators of future market direction. But how reliable is the CBOE put/call ratio?

On Wednesday, the put/call ratio spiked. In fact, it's only been rising lately, a sign that traders are beefing up their bearish bets, CNBC's Simon Hobbs reports.

After all, traders buying puts are typically making a downside bet while call buying is usually a bet to the upside. So when traders are buying more puts than calls, it suggests traders are bearish on the market.

What's the Trade?

Although the put/call ratio has climbed to 1.15, Birinyi Associates suggests now might not actually be the time to sell. During four of the last five times the ratio has hit its current level during this bull market, the S&P 500 index actually climbed over the next few months.

Pete Najarian, an options trader and co-founder of optionMONSTER.com, isn't sure the current put/call ratio is a bearish sign.

In this current environment, Najarian thinks put buying is simply protection to the downside. In other words, put buying is just a way for bullish investors to hedge their bets.

---
DID DELL EARNINGS SAVE TECH?

After a string of disappointing results from Hewlett-Packard and Cisco Systems , among technology names, the tech earnings season ended on a high note. On Wednesday, Dell reported earnings that easily exceeded Wall Street estimates.

But to analyst Toni Sacconaghi of Sanford Bernstein, tech never really needed saving. Dell's results were "very stong," but on balance, he thinks tech earnings overall were "pretty good." He pointed to Apple , IBM , Intel and Qualcomm's positive results.

"Recently H-P and Cisco were disappointing," Sacconaghi said. "I think those were company-specific issues."

So what's the trade?

Sacconaghi likes mobility, specifically Apple. The stock has been in a tight trading range since the begining of this year, he noted. It went through a similar stretch last year, where its stock didn't do anything for months despite positive earnings. So he thinks it's poised for a move higher.

---

CALL TO THE FLOOR: CLIFFS NATURAL RESOURCES

Fresh off Cliffs Natural Resources' $5 billion acquisition of Thompson Iron Mines, Cliff’s CFO Laurie Brlas sat down for a live interview with CNBC to talk about the supply of iron ore and coal and what it means for America’s largest iron ore miner. Pete Najarian likes the supply demand dynamic as well as the valuation. He thinks Cliffs is a buy.

Brlas told the Fast Money team that she sees a short supply of iron ore for the long term. Demand is strong, she said, with China is continuing to grow and the U.S. and Western Europe coming back. She also sees a global shortage of metallurgical coal, which the company mines as well. “We think it is a strong place to be.”

Brlas was also asked when iron ore prices will top out. She believes it will continue to be cyclical. “We’re off the biggest high that we had, but prices are still up 20 to 25 percent over last year.”

*Michelle Fox contributed to this report.

______________________________________________________
Got something to to say? Send us an e-mail at fastmoney-web@cnbc.com and your comment might be posted on the Rapid Recap. If you'd prefer to make a comment, but not have it published on our Web site, send those e-mails to fastmoney@cnbc.com.

Trader disclosure: On May 18, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Steve Grasso owns (AKS), (AMD), (ASTM), (BA), (BAC), (C), (D), (HOV), (JPM), (LIT), (LPX), (MHY), (NDAQ), (PFE) and (PRST). Steve Cortes owns (SO), (EXC), (KFT), (K), (GS), (MS) and (TGT). Steve Cortes is short Nikkei. Steve Cortes is short EEM vs. S&P Long. Pete Najarian owns (AAPL), (HPQ), (MS) and (MSFT). Pete Najarian is long (KGC) calls

Steven Grasso
Stuart Frankel & Co and it’s partners own (ABX)
Stuart Frankel & Co and it’s partners own (CSCO)
Stuart Frankel & Co and it’s partners own (CUBA)
Stuart Frankel & Co and it’s partners own (GERN)
Stuart Frankel & Co and it’s partners own (HPQ)
Stuart Frankel & Co and it’s partners own (HSPO)
Stuart Frankel & Co and it’s partners own (MSFT)
Stuart Frankel & Co and it’s partners own (MU)
Stuart Frankel & Co and it’s partners own (NEM)
Stuart Frankel & Co and it’s partners own (NYX)
Stuart Frankel & Co and it’s partners own (PFE)
Stuart Frankel & Co and it’s partners own (PRST)
Stuart Frankel & Co and it’s partners own (SDS)
Stuart Frankel & Co and it’s partners own (XRX)
Stuart Frankel & Co and it’s partners are Short (QQQQ)
Stuart Frankel & Co and it’s partners are short (AAPL)

Brian Kelly
Accounts Managed By Brian Kelly Capital own (BHP)
Accounts Managed By Brian Kelly Capital own Australia Dollars
Accounts Managed By Brian Kelly Capital own (TLT) calls
Accounts Managed By Brian Kelly Capital own (EBAY)
Accounts Managed By Brian Kelly Capital own (SLV) calls
Accounts Managed By Brian Kelly Capital are short yen

Tony Sacconaghi
Sacconaghi owns (STX)
Sanford Bernstein is a market maker in (DELL)
Sanford Bernstein received Compensation for non-investment banking-securities related services from (DELL)

Dennis Gartman
Funds Managed by Dennis Gartman are short Yen
Funds Managed by Dennis Gartman own Asian Short term Government Bond fund
Funds Managed by Dennis Gartman own gold, copper, corn, crude oil, soybeans

CNBC.com with wires.

Symbol
Price
 
Change
%Change
CLF
---
CSCO
---
HPQ
---
IBM
---
INTC
---
QCOM
---
AAPL
---

Contact Halftime Report

  • Showtimes

    Halftime Report - Weekdays 12p ET
    Fast Money - Weekdays 5p ET