Unusual Options Activity Review: INTC, HPQ, MCD, SNTA, CSCO, AOL, SLE, SVU, HERO, AIG, .SPX, .OEX. .VIX, TBT, TLT
Monday's Bullish Trading
Options on Intel (INTC) were actively traded Monday. Shares lost 31 cents to $27.76 and were among 28 Dow stocks to post losses. Only Hewlett Packard (HPQ) and McDonald's (MCD) ticked higher within the Dow Monday. Meanwhile, options volume in Intel included 86,000 calls and 43,000 puts, a ratio of two-to-one. A bullish July 26 ñ 29 risk-reversal was initiated on the stock and highlighted in the midday XPOUND. In this trade, the investor sold downside July 26 puts to buy upside July 29 calls. The largest options trades in Intel surfaced later, however, after 20,000 Jul 31 calls traded on the stock for 27 cents and 15,000 for 27 cents. The 35,000 contracts traded on the International Securities Exchange and data indicate the position was bought-to-open. If so, it's a bullish play and seems to express the view that Intel will be trading north of $31 (+11.7%) through the July expiration. Shares of the world's largest chipmaker have gained 14.5 percent so far in 2012.
Bullish trading was also seen in Synta Pharmaceuticals (SNTA), Cisco (CSCO), and AOL.
Monday's Bearish Trading
Sara Lee (SLE) slips 34 cents to $21.17 and options volume on the snack food company hit 10X the daily average, with 17,000 calls and 8,825 puts traded on the stock Monday. The top trades were part of a combination or "risk-reversal" after one strategist apparently sold 3557 May 21 calls on SLE at 72 cents to buy 3557 May 18 puts for a dime. The risk-reversal traded another 3557X at a 63-cent credit and appears to be opening activity. If so, the activity seems to reflect concerns about a possible drop in the stock price. A shareholder might have initiated the trade as a short-term hedge or "collar" on the stock. If so, the position would have a similar dynamic as writing an in-the-money covered call, but the downside puts, for a dime, offer some protection if the stock makes a dramatic move lower through mid-May.
Bearish trading was also seen in Supervalu (SVU), Hercules Offshore (HERO), and AIG.
Overall volumes in the index market remained light despite the higher levels of volatility Monday. 373,000 calls and 605,000 puts traded on the S&P 500 Index (.SPX), the S&P 100 Index (.OEX), and other cash indexes; which is only about 75 percent of the average daily volume. The S&P 500 Index lost 15.88 to 1382.20 and CBOE Volatility Index (.VIX), which tracks the expected volatility priced into S&P 500 Index options, jumped 2.11 to 18.81 and closed at one-month highs. VIX is now well (37.7%) above the lows seen in mid-March. So, although volumes have been light, the volatility index has been on the move and the higher levels suggest that risk perceptions (hedging activity) are possibly on the rise.
Analyzing the ETF Market
Proshares Ultra Short Bond Fund (TBT) saw a day of heavy trading. Shares closed with a 94-cent loss to finish $19.15 after weak jobs data sent the iShares Long-term Bond Fund (TLT) up $2.64 to $115.55. TBT is a fund designed to move twice the inverse to TLT. Shares of the short bond fund were down on the session and total volume in the product was 196,000 calls and 25,000 puts. April 21 calls, which have 148,921 in open interest and expire in 11 days, were the most actives. More than 130,000 contracts traded, as some bearish bond traders were possibly liquidating positions on diminishing hopes for a rally beyond $21 per share in TBT. Important Information: Inverse ETFs are designed to achieve their investment objective on a daily basis are not designed to track the underlying index or benchmark over a longer period of time. Inverse and leveraged ETFs that are reset daily are unsuitable for investors who plan to hold these products for longer than one trading session. Over longer periods of time, leveraged and inverse ETF performance can differ significantly from their daily objective due to the effects of compounding.
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