Options Flow Summary: AA & MU
Alcoa Inc (AA)
This is the third day in a row in which we see notable Alcoa option volume. It has been reported that AA was in talks with RTP, and consequently, this has lifted the stock 6% to just over $45. Analysts will be kept busy in the near term working out the different bid scenarios for the myriad metals firms currently in play.
Todayís activity is characterized by aggressive levels of upside call buying in AA at the 50 strike in August and October. Some at-the-money call sellers have emerged, possibly taking gains off the table given the recent $10 run. Currently, close to 25,000 October 50 calls have traded. This includes a trade of 10,000 tied to stock on the PHLX for $1.78 at 11:15am. Implied volatilities in AA options are relatively stable in the face of this news, reflecting the previous expectations of deal-related movement this summer.
Micron Technology Inc (MU)
The largest trade of the day was in Micron options on the NYSE-Arca exchange this morning. The firm is hosting an analyst conference in California today, providing plenty of information for participants to digest. Headlines are generally bullish with the stock up $.06 to $13.90.
In todayís trade a large institutional client sold 25,500 July 11 strike calls for $2.85 and bought 34,000 August 13 calls for $1.20 in a diagonal ëup and outë spread for a net credit. An examination of activity from earlier this year shows that the July 11 calls were accumulated from April through June for prices near $1.30 when the stock was in the $12 range. Todayís roll allows the buyer to cash out most of his original expense and maintain a significant upside position if the stock continues itís climb.
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About Henry Schwartz
Henry Schwartz has traded derivatives on US and European exchanges for nearly 20 years. His experience includes market-making and institutional trading at the Hull Group, Salomon Brothers, Bear Stearns and most recently Banc of America Securities, where he led the electronic market-making project coincident with the launch of the ISE. His current work involves real-time stream analysis of options market activity for a number of leading institutional sell-side firms.
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