Mid-day Unusual Activity Report: NRG Energy Inc (NRG)
General Sentiment
The options market is trading actively with the Fed policy statement a few hours away. Price action is generally higher, with the broad averages up about Ω% with a bullish bias to the options trading. Just before noon, calls outnumber puts by a significant margin of 3:2.
Most analysts are looking for a quarter percent cut. The CBOE VIX is down 4% to 20.22 as traders look ahead to reduced levels of uncertainty following the release.
NRG Energy Inc (NRG)
A massive spread traded in this energy name on the Amex this morning. A large institutional client sold 90,000 Jan 35 calls for $11.40 against a purchase of 139,500 March 45 calls for $5.35. Both trades appear to be opening new positions. The stock, which has been the focus of takeover chatter in the past, is currently trading near $45.00.
This ratio diagonal spread was done ahead of earnings, which are expected Friday morning. It appears to let the seller capitalize on near term implied volatility to the downside, while maintaining a significant long volatility and long gamma profile over the coming months.
The net premium collected by the seller is more than $27.9 million. The optimal return would come with a relatively flat reaction to earnings and a pickup in stock volatility early next year.
Posted By: Trade Alert
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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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