Hot Option Plays: Finance And Tech Lead After Hours

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Cusick’s Corner 12-26-2012 After Hours
I will have to make this short, coaching a hockey tournament. At this stage support has held but was still tested. I will be keeping an eye on the 200-day moving averages on all the major indices. Being defensive may be the best tactical play as we have low volume, mixed data and various global and domestic bank holidays. See you Midday.

Stock market averages closed modestly lower on light volume for this rather slow news day. There are no earnings of broad market significance for the remainder of the week and the only economic stat of the day showed the Case Shiller 20-city home price index up 4.3 percent in October, a bit better than the 3.9 percent that was expected. Overseas markets are seeing mixed trading, but Japan’s Nikkei continues to see strength and was up another 1.5 percent after Shinzo Abe was named the country’s premier. Abe has promised to run the monetary printing presses to help end the nation’s deflationary cycle. Crude oil is running $2.36 higher to $90.96, but gold has trimmed its gains and is up $1.50 to $1661. On Wall Street, the Dow Jones Industrial Average was modestly higher midday, but is closed down over 24 points. The NASDAQ finished down 22.

Bullish
JC Penney (NYSE:JCP) sees relative strength and increasing options activity Wednesday. While the SPDR Retail Trust (XRT), which holds a basket of different names from the sector, is down 1.7 percent, JCP has added 4.4 percent to close $20.75. On the options front, the volume isn’t impressive at only 29,000 contracts. Typical volume for JCP is about 35,000. However, Weekly call options that expire later this week, on 12/28, are seeing noteworthy flow. The Weekly 20 calls are the most actives. 2,770 contracts changed hands. Weekly 20.5 and 21 calls are seeing interest as well. It’s not clear what is driving the relative strength in JCP shares or the increased activity in very short-term call options on the stock. For whatever reason, it appears that some investors are bullish on the retailer and might be anticipating further gains for the stock before the weekend.

Bullish trading was also seen in Macy’s (NYSE:M), Rite Aid (NYSE:RAD), and Trina Solar (NYSE:TSL).

Bearish
Marvell Technology (NASDAQ:MRVL) has come under fire and closed down 85 cents to $7.40 on heavy volume of 30 million shares after a jury returned a $1.17 billion verdict in favor of Carnegie Mellon and against Marvell and other defendants. The stock is under pressure and options volume is running 5X the daily average. 16,000 puts and 7,000 calls traded on the stock so far. January 7.5, Weekly 7 and Weekly 7.5 puts are the most actives and implied volatility in MRVL options is up 12 percent to 45.5.

Bearish trading was also seen in WR Grace (NYSE:GRA), Questcor Pharmaceuticals (NASDAQ:QCOR), and Medifast (NYSE:MED).

Index Trading
CBOE Volatility Index (.VIX) continues its run higher. VIX, which tracks the expected or implied volatility priced into S&P 500 Index (.SPX) options, closed up 1.64 points to 19.48, as the S&P 500 trades in a 13-point range and loses 6.83 points to close 1,419.83. VIX has now rallied 24.3 percent in a little more than a week and the rally in the index might reflect expectations for increasing volatility beginning early next year. However, volumes in the index market are light today. 170,000 calls and 289,000 puts traded on the S&P 500 today. So, there are no signs of aggressive hedging accompanying today’s spike in the volatility index.

ETF Action
SPDR Retail Trust (XRT) closed down $1.08 to $61.09 after some early reports from the holiday shopping season are pointing to unimpressive sales totals. XRT is down on the day and options volume on the ETF includes about 48,000 puts and 6,300 calls. One large four-way spread is driving a lot of the activity after an investor sold the Jan 59 – 63 put spread on XRT, 10000X and bought the Jan 62 – 58 put spread, 10000X. The trade appears to be a Jan 58 – 59 – 62 – 63 put condor spread, sold at 40 cents, and possibly closing a position on concerns the retail sector might see increasing volatility in the weeks ahead. January 2013 options expire in 23 days.

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