Unusual Options Activity Review: AAPL, NXPI, RHT, ONTY, NLY, SWY, GGP, CAM, .VIX, UUP

Posted August 31st, 2012 by Joseph Cusick in Unusual Activity

Unusual Options Activity Review For Thursday, August 30, 2012

Thursday's Bullish Trading
Apple Computer (AAPL) Weekly (8/31) 670 calls are Thursday's most actively traded equity options contract. Shares closed down $9.60 to finish $663.87 and the 670 call closed $1.10. The contract was listed last Thursday and expires after Friday. After Thursday, Weekly 8/31 calls will have one trading day of life remaining. If AAPL closes for less than $670 Friday, the Weekly 670 call is out-of-the-money and expires worthless. If AAPL closed at $670, the contract is at-the-money and expires worthless. If shares move back beyond $670.01, the contract is in-the-money and has intrinsic value. At that point, unless the contract is closed out, it will be exercised/assigned.

Aug 670 calls on Apple were recently trading at $1.35. If bought at that price, the breakeven of the position at the expiration is $671.35 (strike price plus debit). In other words, the stock must move beyond $671.35 (excluding transaction costs) to earn a profit if bought for $1.35 Thursday. The debit is at risk if shares close for $670 or less. In short, there is a lot of leverage in a contract on a high priced stock that is near-the-money with one day of life remaining. Relatively small percentage moves in the underlying can result in high percentage gains or losses in the options. To get a better feel, check the quotes on the AAPL 670 call throughout the trading day Friday.

Bullish trading was also seen in NXP Semiconductors (NXPI), Red Hat (RHT), and OncoThyreon (ONTY).

Thursday's Bearish Trading
Annaly Capital Management (NLY) closed off 8 cents to $17.18 and options volume on the New York-based REIT is running 3X the daily average. About 25,000 puts and only 500 calls traded on the stock. The top trade is a 9000-contract block of January 10 puts for 30 cents per contract when the market was 27 to 30 cents. It might be a closing trade, because the contract is 41.5 percent out-of-the-money and has 15,000 in open interest. However, September 17 puts, which are 20 cents out-of-the-money and expiring in 22 days, are the most actives in NLY Thursday. 14,000 traded against only 4,865 in open interest. Implied volatility moved up 2.5 percent to 13, as some players seem to be bracing for another round of volatility in the stock. NLY fell 3.4 percent on August 6-7 after being hit with an analyst downgrade.

Bearish trading was also seen in Safeway (SWY), General Growth Properties (GGP), and Cameron International (CAM).

Index Recap
CBOE Volatility Index (.VIX) hit a high of 18.05 Thursday morning and closed up .77 to 17.83 late-Thursday. VIX has been moving higher over the past two weeks and is now up 30 percent from the 5-year lows seen on August 17. All eyes will be on Fed Chairman Ben Bernanke Friday, as investors will scrutinize his speech in Jackson Hole, WY for signs the Federal Reserve is ready to ease further. Yet, the news flow after the Labor Day weekend might have important implications as well. The economic calendar holds data on manufacturing, construction spending, and monthly jobs. Auto makers will report monthly sales and there will be a handful of corporate earnings reports to digest as well. Consequently, VIX has been ticking higher ahead the Labor Day weekend, which will be followed by four days of heavy news flow after the break.

Analyzing the ETF Market
Dollar bears were busy in the PowerShares Dollar Fund (UUP) Thursday. UUP, which is an exchange-traded fund that tracks the buck against a basket of foreign currencies (but is heavily weighted towards the euro/USD pair), closed up 5 cents to $22.44 on very light volume of 540K shares, which is about half the normal activity for the fund. Yet, options volume in UUP is running 2X the daily average. 9,335 puts and 1,200 calls traded on the fund today. Jan 23 puts were the most actives. 5,000 traded. December and January 22 puts were actively traded as well.

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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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