Unusual Options Activity Review: TEVA, ZOLT, TQNT, FRX, CHK, ITUB, HRB, EBIX, .SPX, .OEX, .VIX, XLB

Posted March 28th, 2012 by Joseph Cusick in Unusual Activity

Unusual Options Activity Review For Wednesday, March 28, 2012

Wednesday's Bullish Trading
Teva Pharmaceuticals (TEVA) bucked the bearish trend and added 10 cents to $44.15 Wednesday. Options volume was picking up as well, with 16,000 calls and 2,570 puts traded on the pharmaceutical company today. The top trade was a 5,800-lot of January 45 calls traded at the $2.85 asking price. Shares were around $43.81 at the time. About two hours later, another 3,050-block of TEVA Jan 45 calls traded at the $3.05 asking price. At the end of the day, 10,550 contracts had changed hands against 6,345 in open interest. April 45 and January 47.5 calls on TEVA saw interest as well. The company announced today that it has launched a generic version of a schizophrenia drug produced by AstraZenaca. Some players might be buying January upside calls on hopes increasing revenues from the drug may lift the profits and share price of TEVA in the months ahead.

Bullish trading was also seen in Zoltek (ZOLT), Triquint Semiconductor (TQNT), and Forest Labs (FRX).

Wednesday's Bearish Trading
Chesapeake (CHK) shares lost 4.1 percent to 99 cents to $23.25 following a day of losses in the energy markets. Crude was down $1.80 to $105.53 per barrel, heating oil lost a penny to $3.22, and natural gas gave up 2.5 cents to $2.27.CHK, a leading natural gas producer, shares fell in active trading of 13.5 million shares. Meanwhile, 40,000 puts and 29,000 calls traded on the stock, which is 2.5X the daily average for the name. The top trade of the day was a 7,000-lot of April 23 puts for 76 cents per contract. One investor bought the block and also sold 5,000 April 24 puts at $1.30. The ratio spread is possibly a roll. That is, the investor might be closing out a position in April 24 puts, which are now 75 cents in-the-money after today's slide in the stock price, and opening a new position in out-of-the-money puts.

Bearish trading was also seen in Itau Unibanco Banco (ITUB), H&R Block (HRB), and EBIX.

Index Recap
Market action was a bit more volatile Wednesday, but overall volumes were light. Still, some hedging activity was seen. 745,000 puts and 475,000 calls traded on the S&P 500 Index (.SPX), the S&P 100 Index (.OEX) and the other cash indexes. The S&P 500 lost 6.98 points to 1,405.54 and the most active index options contracts included S&P 500 April 1,300 and 1,350 puts. Some investors were perhaps buying downside VIX puts on concerns about future losses for the S&P 500 in the weeks ahead. April options expire in three weeks. However, CBOE Volatility Index (.VIX) hit a morning high of 17.27, but then fell in afternoon trading and finished down .12 to 15.47. VIX typically moves higher when the S&P 500 moves lower and when demand for S&P 500 puts is on the rise. So, while the S&P 500 fell and put volume picked up a bit, there was certainly no sign of panic in the index market today.

Analyzing the ETF Market
A large spread trade surfaced in the SPDR Basic Materials Fund (XLB) Wednesday. XLB, which is a fund that holds names like Alcoa, Monsanto, and International Paper, lost 52 cents to $36.79 and options volume the product was 5X the daily average, with 125,000 puts and 13,000 calls traded on the ETF today. One noteworthy traded printed before midday when on strategist bought a May 32 ñ 34 put spread for 24 cents, 38400X. That is, they bought 38,400 May 34 puts on the ETF for 39 cents and sold 38,400 May 32 puts at 15 cents. The position is probably designed as a short-term hedge against a larger portfolio, as the spread will offers its best payoff if XLB falls to $32 or less through the May expiration, which represents a 12.7 percent slide over the next 51 days.

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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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