Unusual Options Activity Review: TRV, F, SKS, NYT, KR, FSIN, IVN, MHR, .SPX, .OEX, .VIX, UUP
Unusual Options Activity Review For Tuesday, April 3, 2012
Tuesday's Bullish Trading
Travelers (TRV) shares shed a nickel to $59.28 and were among 25 losers within the Dow Jones Industrial Average Tuesday. Meanwhile, options volume on the insurance company hit 6.5X the daily average. 6,400 contracts traded on the stock and call volume trounced put activity, as 6,150 call options traded in Travelers today. The flow was focused on April 60 calls, which are 1.2 percent out-of-the-money and expiring in 16 days. Most of the activity surfaced midday when blocks of April 60 calls on TRV were trading at the ask prices between 60 and 70 cents per contract across multiple exchanges. Meanwhile, implied volatility rose 9 percent to 19, as it appears that call buyers were dominating the action in Travelers today. There were not headlines and share volume was light at 2.8 million. The bullish trading might be in anticipation of earnings. The company is due to report on April 19, which is Thursday before the expiration.
Bullish trading was also seen in Ford Motor (F), Saks (SKS), and New York Times (NYT).
Tuesday's Bearish Trading
Kroger (KR) shares came under pressure and investors were shopping for puts on the grocery chain today. There were no headlines to explain the weakness, but KR lost 66 cents to $23.73 on robust volume of 8.8 million shares. Typical volume is about 5.5 million. Meanwhile, options volume was 3.5X the daily average after 4,100 puts and 745 calls traded on Kroger today. The flow was heavily concentrated in the April contracts. April 24 puts were the most actives. 3,330 contracts changed hands. 97 percent traded at the ask and levels of implied volatility rose 7 percent to 19. It's not clear what was driving the bearish activity, but for whatever reason, some investors were apparently buying downside puts on Kroger and bracing for additional weakness in the share price. The company last reported earnings on March 1.
Bearish trading was also seen in Fushi Copperweld (FSIN), Ivanhoe Mines (IVN), and Magnum Hunter (MHR).
Index Recap
Volatility picked up a bit Tuesday afternoon after minutes from the latest Federal Reserve meeting were announced, but at the end of the day, volumes were light and there was not much overall movement in the index market. 399,000 calls and 663,000 puts traded on the S&P 500 Index (.SPX), the S&P 100 Index (.OEX), and other cash indexes Monday; which is only about 81 percent of the recent average daily volume, according to Trade Alert data. SPX lost 5.66 points and CBOE Volatility Index (.VIX) hit an afternoon high of 16.65, but fell sharply in the final hour and added just .02 to 15.66 on the day. The most active index options contract of the day was the May 18 put on the VIX. One player sold 38,000 contracts at $1.71. At the end of the day, 44,860 VIX May 18 puts had traded and some investors might have been liquidating positions on the view market volatility is more likely to rise than fall from now through mid-May.
Analyzing the ETF Market
Options on the PowerShares Bullish Dollar Fund (UUP) were actively traded. UUP saw a lift late-Tuesday and finished up 17 cents to $22.02 after the dollar benefited from the more hawkish views reflected in the minutes from the latest FOMC meeting. One player in the options market doesn't seem convinced the gain can hold and apparently sold 6,000 Jan 23 calls on the dollar fund for 40 cents, bought 6,000 Jan 21 puts for 34 cents and sold 6,000 Jan 19 puts at 4 cents. In other words, upside Jan 23 calls were sold on the ETF to buy a Jan 19 ñ 21 put spread. A 10-cent credit was collected and this spread will offer its best payoff if UUP is trading for less than $19 per share at the January expiration. Overall, trading was active in the product. 16,000 calls and 25,000 puts traded in UUP today, which is 2.5X the daily average.
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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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