Unusual Options Activity Review: AIG, USG, PCS, HNZ, PCAR, WIN, CQB, MHR, VIX, EWJ

Posted May 11th, 2012 by Joseph Cusick in Unusual Activity

Thursday's Bullish Trading
AIG adds 41 cents to $32.24 through late-day trading Thursday and is attempting to recover some of the losses from the week before. Shares fell 5.5 percent Thursday and Friday on earnings news and then lost another 3.4 percent Monday and Tuesday of this week. The stock has since rebounded 1.7 percent and the options action is interesting, as 82,000 calls and 16,000 puts traded on AIG today. The top trades are part of a spread, in which the investor apparently sold 36,800 August 35 calls on AIG at $1.15 to buy 18,400 November 35 calls for $2.34, paying 4 cents for the 1X2 call calendar spread. AIG August 35 calls saw a flurry of buying activity in late-April on reports banks might start bidding for the companyís assets. However, the rally ran out of steam and then the stock fell on earnings news last week. Thursdayís spread trader is possibly adjusting a position and giving the bullish trade more time to play out. They are buying half as many November 35 calls and paying about double the premium. The net result is a small debit paid for the 1X2 call ratio spread.

Bullish trading was also seen in USG, MetroPCS (PCS), and Heinz (HNZ).

Thursday's Bearish Trading
Paccar (PCAR) came under fire Thursday afternoon and is down $1.02 to $39.46 on high volume of 8.2 million shares on reports the SEC is investigating the companyís financials from 2008 to 2011. Options on the stock are actively traded as well. 8,680 puts and 2,500 calls so far. May 39.3 puts, which have an unusual strike price due a contract adjustment after a 70-cent dividend was paid in January, are the most actives. 4,290 traded. May 38.3 and 40.3 puts are seeing interest as well. Levels of implied volatility in PCAR options is up 38 percent to 42.5, as some investors are possibly buying puts to hedge stock from the risk of additional fallout related to the SEC investigation.

Bearish trading was also seen in Windstream (WIN), Chiquita Brands (CQB), and Magnum Hunter Resources (MHR).

Index Recap
The overall action in the index market seemed to reflect the diminishing concerns about the European debt crisis, which had triggered a bit of volatility through midweek and sent CBOE Volatility Index (VIX) to a morning high of 21.79 Wednesday. VIX slipped 1.05 to 19.03 today and is off 12.5 percent from yesterdayís highs after the S&P 500 traded steady and added 3.41 points to 1,357.99. Despite the marketís wild intraday swings Tuesday and Wednesday, the average daily move in the S&P 500 so far this week is just 4.7 points. The small daily moves stand in stark contrast to the chaotic scene in the fall 2011 when 20+ point moves in the S&P 500 were not uncommon through August and September. VIX hit a high of 45.45 on October 3 and the fact that it is near 19 Thursday reflects the decline in actual volatility seen since that time.

Analyzing the ETF Market
iShares Japan Fund (EWJ) sees a second day of high call volume. As noted yesterday, 100,000 September 10 calls traded on the stock an average of 13 cents per contract yesterday. Open interest data today confirm that positions were being bought to open. Shares are up 4 cents to $9.36 today and another 115,000 traded for an average of 13.4 cents against 127,595 in open interest, which is by far the largest position in the product. EWJ holds leading companies from the Tokyo Stock Exchange and is down a little more than 4 percent since April 26. The Sep 10 calls that were purchased today and yesterday might express confidence that Asiaís biggest equity market will rebound in the months 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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