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The Gaddafi Effect

The drama in Libya, accompanied by the rising oil prices, was naturally the center of investors attention Tuesday.  Libya is the world’s 12th largest producer of oil, and the third largest supplier to Europe, and a potential supply disruption would have a material effect on prices.

“As ex-colonial master Italy has stronger links than most, and the current Italian government has courted a two-way investment relationship with the Gaddafi regime.”

Gavan Nolan


The Markit iTraxx Europe widened to beyond 100 basis points Tuesday morning, hitting this level for the first time in nearly a month, though a slight decline in the oil price to $106 a barrel helped it recover mid-afternoon. Banks and sovereigns were relatively stable today, and it remains to be seen whether the upcoming Irish general election will be overshadowed by events further afield, Markit Financial Information report.

Risk aversion permeated the markets today as investors grappled with the implications of turmoil in the Middle East and North Africa.

After the revolutions in neighbouring Tunisia and Egypt, it now seems that Libya is the next most likely country to see a forced change in government.

The protests have been met with a violent response by the Gaddafi regime, prompting widespread condemnation from world leaders. Senior figures from the government, including the justice minister and ambassadors to the US and UN, have abandoned Gaddafi, according to reports.

“The unrest had a predictable effect on other MENA sovereign spreads, i.e. widening. Libya itself doesn’t trade in the CDS market (no debt outstanding) but Morocco, a more liberal North African country, does. Its spreads widened beyond 200bp today, approaching the levels it reached at the peak of the “Jasmine Revolution” in Tunisia late last month,” credit analyst Gavan Nolan at Markit writes in his daily summary. Adding: “In contrast to the highly autocratic Libya, Morocco does have some level of democracy and is a constitutional monarchy. But protests have still broken out in recent days, with groups as diverse as trade unionists and Islamic fundamentalists calling for less corruption and more press freedom – a reminder that democracy is more than elections.”

Western investors the primary concern was the rising price of oil. Brent crude – now considered a better gauge of global demand due to supply issues for WTI – hit $108 a barrel last night.

Libya is the world’s 12th largest producer of oil, and the third largest supplier to Europe, and a potential supply disruption would have a material effect on prices. Like most Arab countries, the national, state-owned oil firm is the major producer. But there are several western-firms that have operations in Libya, including joint ventures with the government.

“As ex-colonial master Italy has stronger links than most, and the current Italian government has courted a two-way investment relationship with the Gaddafi regime. Eni, the largest Italian oil company, has extensive production facilities in the country, as does Spanish firm Repsol. Both firm’s have seen spread widening this week, though the movements are relatively modest so far,” Nolan points out.

The energy and utilities sectors led the broader market wider, though again the movements weren’t dramatic.

The Markit iTraxx Europe widened to beyond 100 bp’s earlier this morning, the first time it has hit this level in nearly a month, though a slight decline in the oil price to $106 a barrel helped it recover mid-afternoon.

“Banks and sovereigns were relatively stable today, and it remains to be seen whether the upcoming Irish general election will be overshadowed by events further afield,” Gavan Nolan at Markit Credit Research concludes.

See also: Markit. Chart of the Day

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Investors Are Playing The Apple Game

Netflix Tie with Apple TV spurs options frenzy, Wednesday,  as Shares take off and call options on Netflix are in high demand. Apple Inc. CEO, Steve Jobs, said the new Apple TV product will allow consumers to stream movies from Netflix for the first time.
“It’s the biggest change in the iPod lineup ever.”
Steve Jobs
NFLX shares jumped 8.5% on the news to an intraday high of $136.25 in late afternoon trading. Near-term bullish trading strategies dominated options action on Netflix today as a number of investors picked up calls and sold puts on the stock.

Traders purchased approximately 1,400 now in-the-money calls at the September $135 strike for premium of $4.45 apiece.

Source: Bloomberg

Another 1,500 calls were coveted at the higher September $140 strike at an average premium of $2.55 each. Shares in NFLX must increase another 4.6% in order for traders long the September $140 strike calls to start to accrue profits above the average breakeven price of $142.55 by expiration day.

Optimists also scooped up 1,500 calls at the September $145 strike for premium of $1.57 each, and bought approximately 1,300 calls at the September $150 strike.

Some put players drew a line of resistance in the sand at $130.00 and sold roughly 2,000 puts at the September $130 strike for an average premium of $4.98 apiece.

Put sellers keep the full premium received as long as Netflix shares exceed $130.00 through expiration day.
Otherwise, it seems these individuals are happy to have shares of the underlying stock put to them at an effective price of $125.02 each in the event the puts land in-the-money at expiration.

Source:  The Options Insider.

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Al-Qaeda Calls Off US Attack To Spare Life Of 'Twilight' Author

Latest news report from America’s finest news source, The Onion:


ONN‘s Terrorism Expert Omar Al-Farouq explains how Al-Qaeda‘s love for the beloved teen vampire series prevented the death of thousands.

Future: News From The Year 2137 – Now Available

www.theonion.com

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