Cusick’s Corner
Big Ben spoke but there was not much that deviated from the policy stance the Fed has had over the last few months, the Euro did firm up and Gold flattened out. What I have been noticing is that the Tech sector is losing momentum quickly. I am watching support in this offensive sector, 55.5 on the QQQ and if we break that level, not only are we losing the market leader, there’s a shift in the bullish tone. The market action in the S&Ps from a technical perspective looks heavy, especially with the bounce today, meaning that the October highs are acting as a heavy weight that this market may not be able to break. More importantly, if we get a break of the 1215-1210 area on the S&Ps, all the constructive work that has occurred could be in jeopardy. The Claims data and the ECB statement are the next pieces of information that are due out but if today’s action is any indication of what could happen, these events seem to be priced into the market. We may have to patiently wait for the Payrolls and Unemployment due out at the end of the week. See you After Hours.

Stock market averages mover higher with help from jobs data Wednesday morning and the gains held into the closing bell. After concerns about the European Debt Crisis sparked a sell-off on Wall Street Tuesday, domestic economic news was in focus early today after ADP reported that the US economy added 110,000 private sector jobs in October, which was better than the 100,000 increase that economists had expected. Attention then shifted to the FOMC. A two-day meeting on interest rates concluded with a statement at 12:30pm ET. No changes in rates were announced and the text seemed to hold no new information of market significance. Trading was a bit choppy in afternoon action, but the Dow Jones Industrial Average held steady into the closing bell. At the end of the day, the Dow had recaptured 178 points of the 297-point loss from the day before. The tech-heavy NASDAQ gained 33.

Bullish
Teva Pharmaceuticals (NASDAQ:TEVA) gained 68 cents to $39.76 today after the company said Wednesday morning that it earned a quarterly profit of $1.25 per share, which was three cents better than Street estimates. Shares rose on the news and implied volatility in the options fell 17 percent to 32. Trading was active, with 33,000 calls and 9,200 puts traded in TEVA today. The top trade of the day was part of a hefty premium purchase after one player paid $2.11 per contract for 9,500 January 2013 47.5 calls on the pharmaceutical maker. At the end of the day, volume in the contact was more than 12,000. Some investors might be taking positions in these longer-dated calls, which are almost 20 percent out-of-the-money, on the view earnings growth will continue to lift shares through 2012 and into early 2013.

Bullish trading was also seen in Starwood Hotels (NYSE:HOT), XL Capital (NYSE:XL), and American Tower (NYSE:AMT).

Bearish
Petrobras (NYSE:PBR) shares gained 63 cents to $26.80 and one strategist initiated a short straddle on the Brazilian energy company Wednesday. In this play, 3,600 December 26 calls were apparently sold on the stock at $2.05 and 3,600 December puts at $1.21. A net premium of $3.26 was collected per straddle and since volume exceeds open interest in both contracts, this looks like a new position in PBR. The short straddle is not necessarily a bearish play, but a bet that shares will hold around the strike price of the options contracts through the expiration. In this case, the entire credit is kept if the stock settles at $26 per share at December expiration, or down 3 percent over the next 79 days. The range of profitability, excluding transaction costs, is between $22.74 and $29.26. Important to note that there is risk to both the upside and downside from the short straddle because the contracts were possibly sold [[naked]] and not covered by another option or underlying security. If the stock tanks, the puts can get assigned. The calls might face assignment if shares really rally.

Bearish trading was also seen in Sysco (NYSE:SYY), Career Education (NASDAQ:CECO), and MEMC (NYSE:WFR).

Index Trading
It was a relatively quiet day with light volume and low volatility in the index market today. Approximately 408,000 calls and 604,000 puts traded across the S&P 500 Index (.SPX), S&P 100 Index (.OEX), and other cash indexes, which is only about 72 percent recent average daily volume, according to Trade Alert data. After losing 35.02 points Tuesday, the S&P 500 Index added 19.62 points to 1,237.90 and CBOE Volatility Index (.VIX), which tracks the implied volatility priced into S&P 500 Index options, lost 2.03 to 32.74. The top, or largest, index trades today were in the VIX after one investor apparently sold 16,750 VIX Nov 32.5 puts on the index at $3.03 to buy 16,750 Nov 32.5 – 37.5 call spreads for $1.47. The bullish-three way makes its bet profits if VIX settles above 37.5 at the November expiration, in 13 days. There is additional risk to the downside, as the puts (which were sold) possibly were not covered and represent a “naked” options position.

ETF Action
SPDR Retail Trust (XRT) added $1.14 to $53.07 and an interesting spread in the ETF today was a November 43 – 47 – 51 put butterfly, bought for a 51-cent debit, 10000X. The strategist sold 20,000 November 47 puts on the fund at 46 cents for the body of the fly. They also bought 10,000 November 51 puts for $1.46 and 10,000 November 43 puts for 17 cents. The same spread traded 36000X at 53 cents Tuesday and represents a bearish play on the retailers. The max profits happen if XRT settles at $47 at the expiration, or down 11.4 percent over the next 16 days. The positioning might be a play on monthly same store sales numbers and/or economic data due out later this week. Individual retailers report results tomorrow morning. Key jobs data are slated for Friday.

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