Trader Talk

Pisani: Real March Madness? Volume

Volume yesterday was again below expectations, despite this being quadruple witching (the quarterly expiration of stock and index futures, and stock and index options).

One trader who specializes in volatility and options blamed it on March Madness. Silly, I know, but it makes sense. On trading desks, and on the floor of the New York Stock Exchange, traders had March Madness screens up all day.

There's a more serious problem for active traders, however: volatility is down dramatically. That means less opportunities to trade.

The flip side to this is that complacency is very high — nobody is interested in hedging their books. Why? The most prevalent theory is that many traders came into the year underinvested, and many now are behind their benchmarks. The S&P 500 is the most widely used benchmark, and it is already up 4.5 percent this year. So traders are switching to long positions without hedging.

To options traders, who have been frustrated by the lack of volume and volatility, this is a penny-wise, pound foolish philosophy. "They are trying to not spend money when they should be," one options trader told me. "How quickly people forget." He is recommending that his clients BUY volatility, which is a bet that we will see wider price swings in the coming weeks.


1) Despite the low volume, the melt-up continues: tutures slightly higher again. Heard that before? Certainly — coming into today's session, S&P futures have remarkably ended up 14 of the last 15 sessions. Additionally, if the Dow Industrials finishes up today, it will be up for the ninth day in a row, its longest streak since November 1996.

2) Car sales improving: JD Power is saying that U.S. vehicle sales in March will be higher than expected, in fact new retail sales are expected to be 25 percent higher than the same period a year ago. They are now saying annualized auto sales could reach 12 million this year.

3) Best Buy rises 3 percent after receiving an upgrade at Goldman Sachs. Raising it to "buy" on valuation, Goldman also likes the electronics retailer's free cash flow and cash levels, and is optimistic for solid 2010/2011 results, especially in TV sales.

4) Lloyds Banking soars 9 percent after the British-based financial company announced that it will return to profitability this year (the Street was expecting a loss in 2010).

This surprise comes on 1) solid banking net interest margins, 2) "well controlled" costs at levels lower than last year and 3) lower-than-expected impairment provisions year-to-date. This is an encouraging sign for the bank, whose bottom line has been in the red for 2 years.

Royal Bank of Scotland is also rallying 4 percent following this news.

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