Unusual Options Activity Review: INTC, GFI, ARUN, STJ, ACI, QCOM, WPI, IGT, .SPX, XRT
Unusual Options Activity Review For Tuesday, May 8, 2012
Tuesday's Bullish Trading
A large spread traded in Intel (INTC) Tuesday. Shares of the world's largest chipmaker lost 39 cents to $27.37 and are on a four-day 6.2 percent losing streak. INTC was trading at a 52-week high of more than $29 per share last-Wednesday. The stock has been falling since that time and the decline seems to have motivated one investor to adjust a sizeable trade. In morning action, 115,000 July 30 calls were sold on Intel at 28 cents per contract to buy 60,000 August 29 calls for 60 cents per contract. The spread is probably a roll. That is, the investor is liquidating a position in July 30 calls, which are falling 9.6 percent out-of-the-money, and buying the August 29 calls to open a new position. They might have a bullish view on the stock and are buying another month for the trade to play out. The August 29s trade at a higher premium relative to the July 30 calls because there is a higher probability that the contract will be in-the-money at expiration. Relative to the Jul 30s, it has a lower strike and more life remaining before expiration.
Bullish trading was also seen in Gold Fields (GFI), Aruba Networks (ARUN), and St. Jude Medical (STJ).
Tuesday's Bearish Trading
Arch Coal (ACI) was the subject of high put volume Tuesday. Shares of the coal producer lost another 48 cents to $7.60 and set new 52-week lows. ACI has now tumbled 76 percent over the past twelve months. Options volume on the St. Louis-based company included 55,000 puts and 13,000 calls. The largest trades were part of a spread, in which the investor sold 11,750 May 9 puts on ACI at $1.69 and bought 5,500 May 7 puts at 22 cents. They also bought 9,000 June 8 puts for $1.01 and sold 9,000 June 6 puts at 17 cents. Taken together, the four-way spread looks like rolling activity. The investor is selling a May 7 ñ 9 put ratio spread to close, while opening a new bearish position in the June 6 ñ 8 put spread. The investor might have been anticipating a decline in shares and is now positioning for additional losses through mid-June.
Bearish trading was also seen in Qualcomm (QCOM), Watson Pharmaceuticals (WPI), and International Game Technology (IGT).
Index Recap
Despite losses in morning action, trading was orderly Tuesday. In fact, the S&P 500 Index (.SPX) recovered much of its morning losses and closed down 5.86 points to 1,363.72 and about 16 points off session lows. Meanwhile, CBOE Volatility Index (.VIX), which tracks the expected volatility priced into S&P 500 options, jumped to 20.91 in morning action, but erased most of the gains and added .11 to 19.05. Overall volume in SPX, VIX and other cash products was 617,000 calls and 827,000 puts, which is the highest volume seen since the April expiration. The S&P lost less than 6 points and VIX was little changed.
Analyzing the ETF Market
Trading activity in the SPDR Retail Trust (XRT) today seems to reflect the uncertainties that investors face. XRT, which is exchange-traded fund that holds leading companies from the retail sector, lost 69 cents to $59.68 and, as noted in the midday report, morning action on the ETF included substantial buyers of May 56 puts on the ETF. However, later in the day, an interesting combination trade surfaced in XRT after one investor sold 51,000 June 54 puts on XRT at 48 cents to buy 25,500 June 64 calls for 29 cents and 25,500 June 63 calls for 49 cents. In other words, they sold 51,000 downside June puts to buy 51,000 upside June calls. The position was tied to a block of 1.6 million XRT shares. Still, in contrast to the big May 56 put buyer, the bullish combination seems to reflect expectations for higher share prices in the retail sector in the weeks ahead.
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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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