Mid-day Flow Summary: NAL & ELN

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Newalliance Bancshares (NAL)
Interesting flow in NAL today, with options trading 10 times recent levels.  Close to 11,000 contracts changed hands, dominated by call buyers at the 17.5 strike in June, July, and August options. 

Stock was up 6.23% to 16.20, so buyers at this level are looking for continued strength in the stock, which is approaching last yearís highs at the 16.72 level.  Unusual volume in NAL upside call options was also seen on May 8 and 10th, with similar bullish disposition (and stock level near $15.00).

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Elan Corp. (ELN)
Two large trades took place in ELN options on the ISE just after 11am this morning, with close to 20,000 Jan-08 12.5 Puts and 10,000 Jan 17.5 Puts in what looks like a legged 1x2 Put spread.  In this trade, the buyer purchased two 12.5 Puts for 62.5 cents, to sell one 17.5 Put at $1.95, collecting a net 70cent credit in the trade. 

With stock closing at $18.99 today, this type of 1x2 will yield 70cents to the initiator if the stock maintains its level above 17.5, in exchange for a maximum loss of $4.30 if the stock heads down to the 12.5 level.  However, owning the 2nd 12.5 strike put actually makes the payoff somewhat less painful in the event of a severe downward move over the course of the trade. 

Professionals recognize this as a ëskewí motivated trade, where the buyer of two far-out-of-the-money puts believes the volatility skew to be ëflatterí than that implied by their view of the future performance of the stock.   
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