Options Flow Summary & Unusual Activity Alert: Discover Financial Services (DFS)
General Sentiment
US stocks are higher this morning on a continuation of yesterdayís late rally. Broad averages are up about Ω% and the CBOE VIX is lower by a point to 24.48.
Option volume is 7% above recent average levels, and call volume leads puts with a mixed directional bias.
Discover Financial Services (DFS) $14.94 +1.43%
DFS options hit 12 times its average daily volume this morning on several very large blocks that traded on the ISE in what was likely a complex legged transaction in Jan-09 options.
Just before 10am, 10,000 Jan 12.5 puts traded were crossed on the $2.40 bid. This was followed 20 minutes later by 5,000 of the Jan 17.5 calls at mid market, and later a total of 20,000 Jan 7.5 puts on the bid side of the market.
The net package appears to be a 1x2 put spread for a net debit, financed by a sale of Jan calls. Pricing and ISE sentiment data suggest a cross between broker-dealers with the initiating party desiring to own the 12.5 puts and short both the 7.5 puts and 17.5 calls.
The payoff profile of this trade involves potentially unlimited losses if the stock climbs, and significant gains if the stock falls but remains above the short 7.5 strike.
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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