Unusual Options Activity Review: PFE, DPZ, SU, SYNA, HUM, MTW, STP, AEM, .VIX, SPY, QQQ
Unusual Options Activity Review For Monday, April 30, 2012
Monday's Bullish Trading
Pfizer (PFE) is a name worth watching Tuesday morning. The pharmaceutical-maker, and component of the Dow Jones Industrial Average, is due to release its earnings before the opening bell. The stock traded down 18 cents to $22.90 on heavy volume of 59 million shares Monday ahead of the news large blocks of stock printed late and in extended hours, including a 17.4 million share block for $22.93. Meanwhile, 102,000 calls and 36,000 puts traded in Pfizer Monday. Weekly $23 calls, which are now 10 cents out-of-the-money and expiring at the end of this week, were the most actives. More than 31,000 traded. May 23 calls were the second most actives. 27,950 changed hands. Some investors might be taking positions in upside calls ahead of the profit report and hoping for a post-earnings pop in the stock. However, PFE hasnít been a big earnings mover lately. The stock slid .8 percent on Jan 31 after the company last released results.
Bullish trading was also seen in Dominoís (DPZ), Suncor Energy (SU), and Synaptics (SYNA).
Monday's Bearish Trading
Humana (HUM) shares came under fire Monday after the provider of healthcare plans and services reported earnings that failed to live up to Street expectations. HUM was hit for a $7.14 loss to $80.68 per share on heavy volume of 7.3 million. By way of comparison, typical volume for HUM is about 1.5 million shares. Meanwhile, 9,150 calls and 7,025 puts traded on the stock, which is 6.5X the daily average. The top trade was an apparent ìrisk-reversalî, in which the strategist sold 1,410 Aug 85 calls on HUM at $2.48 to buy 1,410 Aug 75 puts for $2.88. The combo, for a 40-cent debit, might have been initiated to ìcollarî a position in shares and hedge the risk of further losses in the stock. If so, by writing $85 calls, the strategist is a willing seller of the stock at the strike price.
Bearish trading was also seen in Manitowac (MTW), Suntech Power Holdings (STP), and American Eagle (AEM).
Index Recap
CBOE Volatility Index (VIX) gained .83 to 17.15 and options in the VIX pit were actively traded Monday. 372,000 calls and 201,000 puts traded on the ìfear gaugeî Monday. A large four-way spread accounted for a good chunk of the activity after one investor sold 47,000 May 23 puts on VIX at $4.90 and sold 47,000 June 29 calls at $1.00 to buy 48,000 July 20 puts for $2.15 and 48,000 August 25 calls for $3.10. In other words, a May 23 ñ Jun 29 strangle was sold at $5.90 to buy a July 20 ñ Aug 25 strangle for $5.25. 65 cents was collected on the package and the activity probably rolls a position out from the May puts and Jun calls to Jul puts and August calls. A similar May 23 ñ Jun 29 strangle traded on the VIX on March 2 for $5.75 and todayís roll possibly exits that position for a small win, while opening a new position in a July 20 ñ Aug 25 strangle. Note that VIX options are priced off of forward values and not the actual spot index.
Analyzing the ETF Market
Share volume in the ETF market dried up Friday and the lack of activity continued Monday. A total of 788 million shares traded in the SPDR 500 Trust (SPY), PowerShares QQQ (QQQ) and other exchange traded funds, according to preliminary numbers compiled by Trade Alert. The volume is about twenty-five percent less than the typical volume for the ETF market. Meanwhile, 1.4 million calls and 2 million puts traded across the various ETFs, which is about 40 percent less than normal. With a dearth of market volatility and not much economic news to guide the action, the tone of trading has taken a wait-and-see feel ahead of key data due out later this week, including monthly jobs data Friday.
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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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