Unusual Options Activity Review: IGT, YHOO, AGO, INtC, LNG, STEC, DNDN, .VIX, SPY, QQQ
Unusual Options Activity Review For Monday, June 4, 2012
Monday's Bullish Trading
International Game Technology (IGT) lost 3 cents to $13.38 and moved to multi-year lows Monday. Shares of the Las Vegas-based maker of electronic gaming equipment have now tumbled 22 percent over the past two months. Meanwhile, options order flow in IGT was clearly lopsided Monday. 5,890 calls and 750 puts traded on the stock. The flow was heavily traded in the October 15 calls, which are now 12.1 percent out-of-the-money. 5,250 traded and, with 99 percent of the volume trading at the asking price, it appears that buyers were dominating the action. Some investors might be looking to take bullish positions in the stock after the recent slide, but rather than buying shares outright, a few were taking positions in options that give the right to buy (or call) the stock for a specific price (strike) for a pre-determined of time (expiration date). If shares stay below the strike and the position is left open until expiration, the contract expires worthless and the debit paid is lost. The position can also be closed out at any time prior to the expiration through an offsetting or closing trade.
Bullish trading was also seen in Yahoo (YHOO), International Game Technology (IGT), and Assured Guaranty (AGO).
Monday's Bearish Trading
The top options trade on a relatively slow day of market action was a block of calls on Intel (INTC). Shares lost a dime to $25.04 and were one of 15 Dow stocks to finish lower Monday. The stock is now roughly 15 percent below the 52-week high of $29.27 set a month ago. In options action, a noteworthy trade on the chipmaker was a 43,000-contract block of August 28 calls traded at 23 cents per contract. An investor sold the hefty block of calls and probably offset a position opened last week, when a 43,000-contract block of Intel August 28 calls was bought for 47 cents per contract on Wednesday. The stock is down about 4 percent since that time and the investor is possibly liquidating the position on diminishing hopes for a move beyond $28 per share. In other words, they're cutting their losses by salvaging the 23-cents per contract of time value left in the contract.
Bearish trading was also seen in Cheniere Energy (LNG), STEC, and Dendreon (DNDN).
CBOE Volatility Index (.VIX) saw a morning advance to multi-month highs of 27.73, but slipped late in the day and finished down .54 to 26.12. Trading in the VIX pit was active, and volume clearly lopsided. 329,000 calls and 106,000 puts traded on the volatility index Monday. More than 20 percent of the call volume was concentrated in the July 25s. 71,750 contracts changed hands. The top trades included several big lots traded on the $5.70 bid. Open interest in VIX July 25 calls is 151,734 contracts and the fifth largest in the product. VIX has rallied 52.3 percent since April and Monday's apparent call writers might be offsetting positions (closing out some of the open interest) on the view the recent rise in volatility has run its course.
Analyzing the ETF Market
It was a relatively slow day for options volume Monday. For example, 2.4 million calls and 3.2 million puts traded across the SPDR 500 Trust (SPY), the PowerShares QQQ (QQQ) and other exchange-traded funds, which is only about 80 percent of the normal or expected volume, according to Trade Alert data. Nevertheless, the underlying tone remained cautious and three of the four most actives options were puts on the SPDR 500 Trust (the third most actives were the aforementioned VIX July 25 calls). June 130 puts on SPY were the busiest. 86,000 traded on the day. Weekly 126 puts and June 127 puts on the "SPYders" were busy as well.
This article is provided for informational purposes only. No statementin this article should be construed as a recommendation to buy or sell asecurity or to provide investment advice. The content provided has beenobtained from sources deemed reliable but is not guaranteed as toaccuracy and completeness. optionsXpress makes every effort to providetimely information to its recipients but cannot guarantee specificdelivery times due to factors beyond our control.
Derivatives involve substantial risk and are not appropriate for all investors. Please read the "Disclosure Statement for Futures and Options" prior to investing in futures or options.
For investments using a straddle or strangle options strategy thepotential loss is unlimited. Multi-leg option strategies are subject tomultiple commissions. Profits may be eroded by the commission expendedto open and close the positions and other risks apply.
View Joseph Cusick's post archive >