Cusick's Corner 12-28-2012 After Hours

I mentioned that I was watching Silver and did get some emails asking me why? The first reason is that the metal has been under pressure lately, plus Tech, QQQ/XLK, has been a laggard for most of 2012 and needs to take a leadership role if the bulls want to continue to have momentum. If the QQQs start to challenge $64, there could be a break to $58.5 level. There needs to be a break of the November highs, $32.5/$66 respectively, if the bulls want to see momentum continue as well as potential for this offensive sector to take on a leadership role in 2013. I now have to run, taking my kids to see the Harlem Globetrotters (I think I am more excited than they are). See you Monday for our last trading day of the year!
Stock market averages slumped through midday and remained under water into the close of trading Friday. With no earnings to guide action, the focus remains on budget talks and the economy. On the economic front, data showed Pending Home Sales up 1.7 percent in November, which was .7 percent better-than-expected. Chicago PMI, a gauge of regional manufacturing activity, rose to 51.6 in December, from 50.4 and better than the 51.0 that had been predicted by economists. The data had minimal market impact. Instead, investors are waiting to see if President Obama and top lawmakers can make a last ditch effort to reach a deal and avoid stepping over the "fiscal cliff". A meeting kicked off at 3:00pm ET Friday afternoon. Yet, investors don't seem too hopeful. The Dow Jones Industrial Average was down for a fifth consecutive day and closed down 158 points. The tech-heavy NASDAQ dropped 25.60.

Macy's (M), the department store chain, is bucking the bearish trend Friday. The stock closed up 28 cents to $37.60 in active trading of over 6.3 million shares. Meanwhile, 16,000 calls and 1,750 puts traded in Macy's options today. January 28 calls, which are 40 cents out-of-the-money and expiring in three weeks, are the most actives. 9,100 contracts changed hands against 2,367 in open interest. January 37 and 39 calls on the retailer are seeing interest as well. It's not clear what is motivating the increased activity, but calls on Macy's were also busy two days ago. 11,000 calls and 2,130 puts traded on the stock Wednesday. Many retailers will report December monthly same store sales next Thursday, but Macy's is not typically one of them. Still, the higher call volumes might express optimism about the company and its 2012 holiday sales results.
Bullish trading was also seen in American Eagle (AEO), Expeditors International (EXPD), and American Vanguard (AVD).

While Macy's (M) saw increasing call activity Friday, its department store rival Saks (SKS) saw increased put volume. Shares of the New York-based company closed down 7 cents to $10.22. Options volume is running 3X the daily average. 6,880 puts and 360 calls traded in Saks today. January 5 puts that expire in 2014 are the most actives. 3,192 traded against 3,880 in open interest, including several smaller lots for 30 cents per contract when the market was 25 to 30 cents. The activity might be closing, as these puts are now 51.8 percent out-of-the-money. May 11 puts on Saks are also actively traded today. 3,136 contracts changed hands so far.
Bearish trading was also seen in Aeropostale (AEO), Home Depot (HD), and Humana (HUM).
Index Trading

CBOE Volatility Index (.VIX) closed up 3.25 to finish 22.72, closing at its best levels since mid-June amid ongoing anxiety about fiscal cliff negotiations. The market's so-called "fear gauge" tracks the expected or implied volatility priced into options on the S&P 500 Index (.SPX), which is down 15.67 points to close 1,402.43 and has suffered a five-day 2.7 percent losing skid. VIX, meanwhile, has rallied nearly 35 percent since 12/18. Yet, players in the options market don't seem too impressed with the big move in the index, as volume in the VIX pit is very light today. 150,000 calls and 129,000 puts so far, which is only about 63 percent of the daily average volume over the past month, according to Trade Alert data.
ETF Action

SPDR Technology Fund (XLK) lost 32 cents to $28.36 and 25,000 January 30 call options traded on the ETF today for an average of 6.5 cents per contract. Open interest is 21,828 and the block of calls today coincided with 5,000 January 29 calls for an average of 30.5 cents per contract. Taken together, the activity appears to be part of a 1X5 call ratio spread (sold the 29s and bought the 30s) on XLK - an advanced play that will pay off if shares see a dramatic rally beyond $30 through the Jan expiration, which is now just three weeks away. There is also risk to the spread if shares settle between $29 and $30, with the max loss suffered if the position is left open through the expiration and shares settle at $30. If shares settle at $29 or less, all of the calls expire worthless and any debit paid for the spread is also at risk if the position is left open through the expiration.

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