Being Nimble & Disciplined Will Be Key in 2011 12-31-2010

Cusick's Corner
The market did as expected into the After Hours -- nothing. As we look towards 2011, this new year might shape up to be a trading year. Being nimble and disciplined are going to be the keys to trading in 2011 (the market will probably be one in which you will have to reassess your trading approach month over month). I want to thank all of you for following the Xpound newsletter and look forward to bringing you market commentary in 2011. Happy New Year!

Trading slowed to a crawl into the final hour of trading for 2010. With no earnings or economic to guide trading, and many investors away for the New Year Holiday, volume and volatility hit the exits as well. The Dow Jones Industrial Average traded in a narrow 67-point range today. For the month of December, the Dow was up an impressive 573 points. The industrial average gained 11 percent on the year.

Bullish Flow
6,600 calls traded in Synovus Financial (SNV), or 7X the recent average daily volume in the name. Shares are up 3 cents to $2.63 and Feb 2.5 calls are the most actives. 5,075 traded (62 percent ask). While open interest is sufficient to cover, ISEE data (at 1027 contracts or 59 percent of the call volume on ISE) indicate that some customers are buying to open new positions in the Columbus, GA regional bank. In short, the overall flow seems to indicate that investors are buying call options and looking for the stock to move higher between now and mid-February.

Bullish order flow was also seen in Abbott Labs (ABT), IMAX, and Waste Management (WM).

Bearish Flow
Two of the top stock options trades on a very slow day were in Savient Pharmaceuticals (SVNT). Shares, which plummeted 44 percent in mid-October when the company said a review of strategic alternatives failed to find a bidder, are up 8 cents to $11.15. In options action, one strategist sold 7,400 January $10 puts 15 cents and bought 7,400 February $10 puts at 45 cents. This timespread, for a net debit of 30 cents, might be a bet that shares will hold above $10 through the January expiration, which is in three weeks, and then fall from that point forward. However, it's probably a roll by an investor looking to buy an additional month of downside exposure to the pharmaceutical company. They're selling-to-close January puts and buying-to-open February puts.

Bearish flow also picked up in Citigroup (C), Eaton Corp. (ETN), and Northern Oil and Gas (NOG).

Index Trading
122,000 calls and 158,000 puts traded across the S&P 500 Index (.SPX), CBOE Volatility Index (.VIX) and other cash indexes today, which is anemic volume for the index market. There is not much to write about. So, I'll update the comments from yesterday. There hasn't been much volatility lately. The S&P 500 Index traded in another narrow 5-point range and is up less than one point late-Friday. However, the CBOE Volatility Index (.VIX) is up .38 to 17.90. The actual volatility, or statistical volatility, of the S&P 500 over the past 20 days is now only 6 percent! Therefore, since VIX tracks the expected volatility priced into S&P 500 options, it is forward-looking and suggests that players in the options market expect (are pricing in) the possibility for a substantial increase in volatility heading into 2011. It is very unusual to see VIX almost 3X greater than SPX actual volatility.

ETF Trading
SPDR Metals and Mining ETF (XME) is flat at $69.02 and options volume is more than 2X the average daily, with 24,000 puts and 3,300 calls traded on the fund. March 60 puts are the most actives after more than 20,000 traded. The top trade is a block of 9,973 traded at $1.42 when the market was $1.36 to $1.42 and appears to have been initiated by a buyer. In fact, all of the volume in those January 60 puts, which are $9 out-of-the-money, traded at the ask. Some fund managers might have initiated the bearish trades to hedge their exposure or protect recent gains in the sector through March 2011. XME is up 47.8 percent since late-August.