Unusual Options Activity Review: WFT, HUM, GPS, FIO, F, HRB, LIZ, KLAC, .SPX, .VIX, GLD,
Thursday's Bullish Trading
Weatherford (WFT) saw a day of high call volume Thursday. The stock was up 47 cents to $14.96 in active trading of 17.5 million shares, as crude oil ticked 28 cents higher to $104.40 per barrel. Meanwhile, 82,000 call options and 1,800 puts traded on Weatherford. The top trades of the day were part of a spread, in which 5000 May 17 calls were sold on the stock at 9 cents and 15,000 May 18 calls at 4 cents to buy 26,000 June 18 calls for 15 cents per contract. The activity in the June 18 calls looks like new positioning, as volume was greater than the open interest. The activity in the May 17 and 18 calls might be to close. So, the three-legged spread is possibly rolling. The investor might have had a bullish view on the stock through May, but after a one-month 10 percent decline in the underlying, they are "buying" one more month for the bullish trade to play out. $18 calls on the stock are now 20.3 percent out-of-the-money. 28,800 Jun 18s traded on the day.
Bullish trading was also seen in Humana (HUM), Gap Stores (GPS), and Fuison-IO (FIO).
Thursday's Bearish Trading
Ford (F) will be worth watching Friday morning. The automaker is due to release its quarterly earnings report before the market opens. The stock added 14 cents to $11.87 on relatively light volume of 40.7 million shares (typical volume is almost 44 million) in advance of the report. Meanwhile, options volume was more than 2X the daily average, with 105,000 calls and 97,000 puts traded on Ford Thursday. May 11 puts, which are now 7.3 percent out-of-the-money and expiring in three weeks, were the most actives. 40,500 contracts changed hands. Some investors might have been buying the downside puts to hedge stock around the earnings event risk. The stock fell 4.2 percent on 1/27 when earnings were last reported and lost 4.5 percent on 10/26 the time before that.
Bearish trading was also seen in H&R Block (HRB), Liz Claiborne (LIZ), and KLA Tencor (KLAC).
Index Recap
Overall volume in the index market rose to its best levels of the week Thursday, with 606,000 calls and 520,000 puts traded on the S&P 500 Index (.SPX), CBOE Volatility Index (.VIX) and other cash indexes, according to Trade Alert data. The S&P 500 Index added 9.29 points to 1,399.98 and is once again near the 1,400 level. The index has been vacillating around 1,400 for more than a month now. Meanwhile, CBOE Volatility Index, which tracks the expected volatility priced into SPX options, lost .58 to 16.24. VIX is down 14.4 percent in the past three days and to its lowest levels since Apr 3. Some investors might be possibly looking for the slide to end soon, however. May 25, May 26, May 21, May 30 and May 20 calls were the most active contracts traded on the volatility index Thursday.
Analyzing the ETF Market
SPDR Gold Trust (GLD) jumped $1.41 to $161.03 on bullish day for the metal Thursday. Gold was recently up $16 to $1658 an ounce. Overall volume in the gold ETF, which owns the commodity stored in bank vaults, was about the usual levels, as 11 million shares and 182,000 options traded in the product. The top trade was a 6500-contract block of July 150 puts traded on the $1.26 asking price when the market was $1.23 to $1.26. The investor might have bought the block of puts on GLD to create a bearish strategy on gold. The next biggest trade in GLD today was a June 158 ñ 163 strangle for $4.85, 5000X. In this premium purchase, the strategist bought 5,000 Jun 163 calls on GLD for $2.63 and bought 5,000 June 158 puts for $2.22, which is a volatility play that may make profits if shares of the fund make a significant move higher or lower in the weeks ahead. The magnitude of the move must be sufficient enough to offset the negative impact of time decay and/or any declines in implied volatility.
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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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