Unusual Options Activity: One-Sided Options Volume In Boston Scientific Corp (BSX) & A Put Frenzy In Companhia Vale Do Rio Doce (RIO)
Options Order Flow Review For October 30, 2007
General Sentiment
By midday on Tuesday, options activity was already trailing recent levels. There were close to 2.5 million puts and 3.1 million calls on the tape with a slightly bearish directional bias.
The broad averages were down nearly Ω% and traders behavior indicated a general "holding pattern" in advance of today's FOMC announcement. The CBOE VIX is up slightly to 20.83 as traders hesitate to add risk, in the form of short options positions, to their books.
Boston Scientific Corp (BSX)
We saw unusual and very one-sided options trading in BSX on Tuesday. Upside call buyers snapped up November and December 15 calls, pushing implied volatility up 10 points from 40% to 50%.
Since the earnings announcement earlier this month, the stock has come down nearly $1 to current levels near $13.70. Tuesday's buyers paid $.20-$.25 for a total of just over 20,000 Nov 15 calls. The data suggests that this volume likely consists of traders closing out positions. These traders were locking in gains made on short positions that were created over the past few weeks (as OI grew to nearly 40,000 contracts).
Companhia Vale Do Rio Doce (RIO)
Options on this mining company ADR were very busy on Monday. The March 25 puts traded more than 40,000 times and implied volatility lifted from 54% to 56%.
Tuesday's activity included a large call trade on the ISE that was tied to stock. In this trade, a seller collected $2.28 for 12,500 RIO Jan-08 40 calls versus 525,000 shares of stock at $36.58.
The options flow on Monday and Tuesday suggests that large players are locking in their gains on the stock. This is to be expected given the massive recent increase in RIO's share price. Since hitting a low in late August, RIO's shares have more than doubled.
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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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