Unusual Options Activity Review: HNR, CPN, SPLS, AMX, TIF, PTEN, BXP, HOV, .VIX, .SPX, XLE

Posted August 27th, 2012 by Joseph Cusick in Unusual Activity

Unusual Options Activity Review For Friday, August 24, 2012

Friday's Bullish Trading
Harvest Natural Resources (HNR) saw a spike accompanied by increasing options activity Friday afternoon. Shares of the Houston, TX oil and gas company are up 8 cents to $9.02 heading into the close. Share volume was light throughout the day, but picked up in the final hour. 435K shares traded on the stock. Meanwhile, 4,800 calls and about 500 puts traded in HNR, which is 3X the daily average for the name. The flow included 2,450-September 7.5 calls for $2 about 20 minutes before the closing bell. It traded on the International Securities Exchange and was an opening buyer, according to data from ISE. The contract is already in-the-money and has 11,909 in open interest, which is the largest block of OI in the name. 4,300 more contacts traded Friday and the activity seems to reflect the view the stock's recent run higher can continue. HNR has rallied nearly 85 percent since mid-June when the company disclosed it was selling its interests in Venezuela. Yet, there was no news to explain the increasing interest in the stock and its options late-Friday.

Bullish trading was also seen in Calpine (CPN), Staples (SPLS), and American Movil (AMX).

Friday's Bearish Trading
Tiffany (TIF) might be a name worth watching Monday morning. The New York-based jeweler is one of only a few companies to report earnings early next week. Shares ticked 4 cents higher to $58.50 Friday ahead of the news and options volume was 35,000 contracts, or about 6.5X the daily average for TIF. 15,000 calls and 20,000 puts traded on the stock. The top trades were part of a ratio spread, in which the investor apparently bought 900 Sep 55 puts on the stock for $1.60 and sold 1,800 Sep 50 puts at 45 cents. The 1X2, for 70 cents, appears to be a bearish short-term play targeting a move to $50 through the September expiration (4 weeks). A Tiffany shareholder might have initiated the spread to help hedge the earnings risk.

Bearish trading was also seen in Patterson UTI Energy (PTEN), Boston Properties (BXP), and Hovnanian (HOV).

Index Recap
Overall options volumes were very light, as many traders are on vacation and others probably called in sick to enjoy an extended summer weekend. For whatever reason, volumes have been light throughout most of the week. Friday, for example, 422,000 calls and 412,000 puts traded on the CBOE Volatility Index (.VIX), the S&P 500 Index (.SPX), and other cash indexes, which is about 72 percent the daily average, according to Trade Alert data. The S&P 500 added 9.05 points to 1,411.13. VIX, which tracks the expected volatility priced into SPX options, lost .73 to 15.23. Volume and volatility often go hand and hand, with markets seeing less activity when trading is quiet, followed by increasing volume when volatility spikes. The changes from one extreme to another can happen gradually over time or swiftly without much notice.

Analyzing the ETF Market
An interesting spread trades in the SPDR Energy ETF (XLE) late-Friday. Shares, which represent ownership in all of the energy-related names from the S&P 500, gained 42 cents to $71.98 and a three-way traded on the ETF, in which the investor sold 10,000 September 74 calls on XLE at 45 cents, bought 10,000 September 71 puts for $1.23, and sold 10,000 September 65 puts at 22 cents. In other words, Sep 74 calls were sold to help finance a Sep 65-71 put spread. The 3-way traded on the ISE, where data confirm the position is opening. If so, the investor might see limited upside for the energy names (XLE to stay below 74), but is also positioning for a possible fall towards the mid-60s by the September expiration. An investor with a large portfolio of energy names might have initiated the spread as a short-term hedge.

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About Joseph Cusick

Joseph Cusick currently serves as the Senior Vice President of Education and a Senior Market Analyst for optionsXpress. Mr. Cusick seeks out common sense and technologically scalable educational pathways for self-directed investors of all experience levels. He is largely responsible for ramping up delivery of online and offline seminars to customers and potential clients worldwide. Prior to serving in his current role, Mr. Cusick immersed himself in the broker side of optionsXpress by managing his own book of business. Prior to joining optionsXpress, Mr. Cusick served as a market maker and portfolio manager at the Chicago Board of Options Exchange. Joseph is a graduate of Marquette University and holds his Series 4, 7 and 63 registrations with FINRA.

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