Unusual Options Activity Review: RIO, NBR, STD, LCC, CSCO, JNPR, MMI, PHM, OVTI, .SPX, .VIX, XRT, WMT, BIG
Unusual Options Activity Review For Tuesday, April 24, 2012
Tuesday's Bullish Trading
Rio Tinto (RIO), the British minerals and mining giant, added 35 cents to $55.05 and a hefty call spread trades on the stock late-Tuesday. In this vertical spread, the strategist bought 24,000 May 55 calls at an average of roughly $2.23 per contract and sold 24,000 May 57.5 calls at $1.05 per contact. The spread, for a $1.18 net debit, is possibly a roll down in strikes. Open interest in the May 57.5 calls, which are 4.5 percent out-of-the-money and expiring in three-and-a-half weeks, is 25,477 and the largest position in the miner. The strategist might have sold to close a position in 24,000 contracts Tuesday on hopes for a move beyond $57.5 over the next 24 days. However, they might be maintaining a bullish position in RIO by opening a new position in the May 55 calls, which are already 5 cents in-the-money.
Bullish trading was also seen in Nabors Industries (NBR), Banco Sandander (STD), and US Airways (LCC).
Tuesday's Bearish Trading
Cisco Systems (CSCO), which saw increasing call writing Tuesday morning, was the subject of a hefty put purchase late in the day. As noted in the Xpound Midday update, call writers were busy in the May 20s on the networking giant. Later in the day, the stock faced a bit of selling pressure and finished down 26 cents to $19.42 after Juniper Networks (JNPR) pre-released earnings and guided its forward estimates lower. JNPR erased the loss, however, and gained $1.48 to $21.65 on the day. Nevertheless, the news seems to have stirred up defensive trading in Cisco, as a 28,000-contract block of June 18 puts traded on the stock for 31 cents per contract on the International Securities Exchange, where data indicate an investor bought the hefty block to open a new position. May 18 puts were the most actives in Cisco. 34,800 changed hands. High volume in downside $18 puts on Cisco comes ahead of the company's May 9 earnings report.
Bearish trading was also seen in Motorola Mobility (MMI), Pulte Group (PHM), and Omnivision Technology (OVTI).
Index Recap
It was a slow day in the index market, as many macro players are possibly waiting for the conclusion of Wednesday's FOMC meeting before making any larger trade on the S&P 500 Index (.SPX), CBOE Volatility Index (.VIX) or other cash indexes. 352,000 calls and 445,000 puts traded in the SPX pit and other products Tuesday, which is only 62 percent of the recent average daily volume for the index market, according to Trade Alert data. The S&P 500 Index added 5.03 points to 1,371.97 and VIX, which tracks the implied volatility priced into S&P 500 Index options, lost .87 to 18.10. Meanwhile, the most active index contract of the day was the VIX May 22 calls, as some investors might have been buying the upside calls on expectations of heightened volatility around Wednesday's Fed meeting.
Analyzing the ETF Market
SPDR Retail Trust (XRT) lost 91 cents to $59.33 after Walmart (WMT) suffered a second day of losses on worries about a bribery scandal, which surfaced in the news media over the weekend. A hefty post-earnings loss in Big Lots (BIG) also weighed on the retail sector Tuesday. Options volume on XRT was busy, or 3X the daily average, after 64,000 puts and 5,900 calls traded in the product. Much of the put volume was due to one spread trade, in which the investor bought 15,000 June 58 puts on the stock for $1.71 and sold 30,000 June 55 puts at 83 cents. The 1X2, for a five-cent debit, is a bearish play that offers its best payout if shares fall to $55 through the June expiration, or 7.3 percent over the next 52 days. The debit is at risk if the position is held to the expiration and XRT stays above $58. There is additional risk to the downside (and margin required) when dealing with put ratio spreads, because not all of the lower strike puts, which were sold, are covered by the higher strike puts, that are bought.
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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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