Unusual Options Activity Review: MMR, JPM, RYL, POT, SVNT, NAV, STJ, FAST, .SPX, .VIX, GDXJ
Unusual Options Activity Review For Tuesday, June 12, 2012
Tuesday's Bullish Trading
McMoran (MMR), the New Orleans, LA oil and gas company, gained 5.3 percent to $9.17 and options volume on the stock was 3X the daily average. 16,000 calls and 2,300 puts traded on MMR Tuesday. July 11 calls, which are almost 20 percent out-of-the-money and expiring in 38 days, were the most actives. 9,158 contracts traded. The flow included a 6000-contract block for 30 cents per contract when the market was 27 to 30 cents and appears to be an opening buyer. June 9 and June 10 calls on MMR were busy as well. It's not clear what was driving the heightened call activity, as there have been no recent headlines on the ticker. Some investors might be looking to take positions in the stock after the 35 percent decline since February. However, rather than buying shares outright Tuesday, these investors are taking positions in options contracts that give the right to buy (or call) the stock for a set price (strike) for a pre-determined period of time (expiration). An investor pays a premium to buy the contract and that premium is at risk if shares hold below the strike of the call option and the position is left open through the expiration. At that point, the contract is out-of-the-money and expires worthless. An options contract can also be closed out at any time prior to the expiration through an offsetting transaction.
Bullish trading was also seen in JP Morgan (JPM), Ryland Group RYL, and Potash (POT).
Tuesday's Bearish Trading
41,000 puts and 760 calls traded on Savient Pharmaceuticals (SVNT) Tuesday. Most of the flow was due to spread trading. For instance, in afternoon action, 9920 June 2 puts traded at the $1.24 bid price and 9,920 July 2 puts traded on the $1.44 asking price. The spread, for a 20-cent debit, traded 20,000X today and appears to be rolling of a position in June $2 puts, which have more than 50,000 in open interest, ahead of the expiration later this week. Savient shares ticked 8 cents higher to 85 cents, but are down almost 90 percent from the highs seen in July 2011. Tuesday's spread trader might have bought the June $2 puts when SVNT was at higher levels and is now closing the position rather than facing exercise of the in-the-money put at the expiration. At the same time, the spread trader is opening a new position in July 2 puts in anticipation of further weakness in SVNT over the next five and half weeks. The activity might be part of a long-stock, long put strategy in SVNT.
Bearish trading was also seen in Navistar (NAV), St. Jude Medical (STJ), and Fastenal (FAST).
Overall volumes in the index market are at low levels, but are likely to pick up in the days ahead. Macro players get their first significant domestic economic stats of the week Wednesday morning when Retail Sales and PPI numbers are released. The quadruple witch expiration, with futures, equity, single stock futures, and futures options all expiring Friday, is likely to drive increasing volume later in the week as well. But only 513,000 calls and 612,000 puts traded on the S&P 500 Index (.SPX), CBOE Volatility Index (.VIX) and other cash index products, which is 73 percent of the recent daily average, according to Trade Alert. S&P 500 June 1300 puts were the most actives. SPX gained 15.25 points to 1,324.18 and VIX, which tracks the expected volatility priced into SPX options, slipped 1.47 to 22.09.
Analyzing the ETF Market
Market Vectors Junior Mining ETF (GDXJ), which is an exchange-traded fund that holds shares of smaller capitalization mining companies, gained 72 cents to $21.1 after the yellow metal added $16 to $1613 an ounce. Interesting options trades on the ETF include a January 18.63 ñ 23.63 ñ 28.63 put butterfly spread for $1.38, 8000X. In this advanced strategy, the investor sold 16,000 January 23.63 puts on the ETF for the body of the fly and bought half as many of the 18.63 and 28.63 puts for the wings. The spread has a neutral to bullish bias with a max payout if shares settle at the middle strike at the expiration. The unusual strike prices in GDXJ are the result of a capital gains distribution and contract adjustment in the ETF.
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