Unusual Options Activity Review: CSCO, SD, MUR, WLT, POO, CAVM, KBH, RRC, .VIX, FXI
Friday's Bullish Trading
Cisco Systems (CSCO) adds 15 cents to $20.54 and is one of 19 Dow stocks holding gains heading down the home stretch of trading Friday. A noteworthy options trade on the networking giant Friday is a combination play, in which 8,000 June 19 puts traded on the stock at 45 cents and 8,000 Jun 22 calls for 34 cents per contract. Both blocks traded on the International Securities Exchange and data from the ISE is suggesting that puts were sold to buy calls and open a new position. If so, an 11-cent credit was collected for the bullish combo and the investor is probably a willing buyer of the stock for $19 per share, as they are writing $19 puts on the stock. However, they are also buying upside calls to participate if the stock moves higher rather than lower before the June expiration. This bullish risk-reversal on Cisco has traded 16000X Friday.
Bullish trading was also seen in Sandridge Energy (SD), Murphy Oil (MUR), and Walter Energy (WLT).
Friday's Bearish Trading
Polypore (POO), a Charlotte NC industrial equipment maker, is up $1.35 to $37 and options volume on the stock is 3X the daily average, being led by a put ratio backspread. In this trade, the investor apparently sold 2,500 June 35 puts on the stock at $3.20 and bought 5,000 September 22.5 puts for $1. The ratio backspread, which is also a diagonal spread for a $1.20 net credit, will offer its best payout if shares hold above $35 through the June expiration and then make a dramatic move lower by mid-September. The stock was trading for more than $74 in July 2011, but has been cut in half since that time on slowing demand for electric car batteries ñ one of the company's key products. The backspread seems to reflect concerns about additional losses in the months ahead.
Bearish trading was also seen in Cavium Networks (CAVM), KB Homes (KBH), and Range Resources (RRC).
CBOE Volatility Index (.VIX) is down .63 to 14.94 and, after several days of whippy action, is up 3.2 percent on the week. The top trades in the VIX pit Friday surfaced in morning action after one investor apparently bought 24,000 May 29 calls on the index at an average of $1.325 and sold 48,000 May 35 calls at 72.5 cents. This 1X2 call ratio spread is possibly a view that VIX may see a substantial move higher in the months ahead and settle near 35 at the May expiration, which would represent a substantial change of trend. The settlement value at the March expiration earlier this week was 14.55. That, in turn, was well below the February settlement of 20.44 and January of 23.64.
Analyzing the ETF Market
iShares China Fund (FXI) sees increasing options action Friday. FXI is off 3 cents to $36.91 on relatively light volume of 10 million shares and lost 4.8 percent on the week. The ETF has been weighed down by disappointing economic news, including a report released Thursday that showed a fifth consecutive month of contraction in manufacturing during March. FXI is a fund that holds shares of leading companies from Hong Kong and mainland China. Players in the options market are active in the product today. 44,000 calls and 62,000 puts traded on the fund so far. The top trade hit in morning trading when 32,000 June 32 puts printed at 57 cents per contract on the American Stock Exchange. A source on the AMEX reports that the block was sold. If so, it seems to be an opening play and to express confidence that FXI will hold above $32 through the expiration, or not fall more than 13 percent over the next three months.
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 >