Unusual Options Activity Review: KOL, ANR, PCX, ACI, BTU, TIBX, REE, ONNN, JDSU, PHM, F, ATML, .SPX, .OEX, .VIX, EEM

Posted March 30th, 2012 by Joseph Cusick in Unusual Activity

Unusual Options Activity Review For Thursday, March 29, 2012

Thursday's Bullish Trading
Activity in the coal sector is heating up late-Thursday. Market Vectors Coal Fund (KOL) hit a morning low of $31.22, but then rallied late in the day to finish up 21 cents to $31.97. Alpha Natural Resources (ANR), Pioneer Coal (PCX), and Arch Coal (ACI) saw impressive late day spikes, as did Peabody Energy (BTU). BTU shares gained 79 cents to $29.62 and finished up more than 5 percent off session lows on heavy volume of 12 million shares. Options action picked up as well. 17,000 calls and 10,000 puts traded on Peabody today. It's not clear what drove the late-day turnaround, but the group had been battered in recent months. BTU is down nearly 60 percent from the highs seen a year ago. End-of-quarter short-covering by hedge fund managers might have helped fuel the rally in the coal names Thursday.

Bullish trading was also seen in Tibco Software (TIBX), Rare Element (REE), and On Semiconductor (ONNN).

Thursday's Bearish Trading
Options action picked up in JDS Uniphase (JDSU) Thursday. Shares of the Milpitas, CA telecomm equipment maker lost 2 cents to $14.57 on relatively light volume of 4.2 million. Typical share volume in JDSU is about 6 million. Meanwhile, 7,650 puts and 1,365 calls traded on the stock, which is about double the normal put volume in the name. The top trade was a 3,515-contract block of June 13 puts for 71 cents per contract, which was a buyer, according to data from one of the exchanges. At the end of the day, more than 5,500 June 13 puts traded on JDSU, as some investors appear to be anticipating a move to $13 or less through mid-June. Shares are up nearly 40 percent year-to-date and some investors are possibly buying the contact, which is 10.8 percent out-of-the-money, to hedge recent gains in the shares.

Bearish trading was also seen in Pulte Group (PHM), Ford (F), and Atmel (ATML).

Index Recap
Overall options volume in the index market remains light. 662,000 puts and 493,000 calls traded on the S&P 500 Index (.SPX), the S&P 100 Index (.OEX) and the other cash indexes. For a second day, the S&P 500 fell early, but then rallied late to recapture the 1,400 level. The index finished down 2.26 points to 1,403.28. Meanwhile, CBOE Volatility Index (.VIX), which tracks the expected volatility priced into S&P options, hit a morning high of 17.20, but finished the day up just .01 to 15.48. The most active index options contract of the day was the VIX April 14 put. 38,280 contracts traded. Some investors might have been buying the contract on the view volatility will remain subdued through the April expiration, which is 19 days for options on the VIX. (22 days for equity options).

Analyzing the ETF Market
The largest options trades Thursday were in the iShares Emerging Markets Fund (EEM). Shares lost a nickel to $42.64 following another round of losses in global equity markets. In options action, one strategist sold 63,850 Apr 43 puts on the ETF at $1.49 and bought 61,600 May 40 puts at 88 cents. The spread, for a 61-cent credit, appears to be rolling activity. That is, the investor is closing out a substantial position in April 43 puts, which are now .8 percent in-the-money and expiring in three weeks. They are keeping bearish exposure in the ETF and buying May 40 puts, which are 6.2 percent out-of-the-money. The investor might have correctly anticipated recent weakness in the emerging markets, which has resulted in a 3.8 percent month-to-date loss in EEM, and they are now bracing for further losses through mid-May.

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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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