Unusual Options Activity Review: PAAS, AEO, CVH, MTW, HPQ, RHT, APC, ABT, .VIX, XLF, SKF,

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Unusual Options Activity Review For Wednesday, May 23, 2012

Wednesday's Bullish Trading
Pan American Silver (PAAS) shares were up 85 cents to $17.13 in active trading of 2.7 million shares despite weakness in the metal Wednesday. Silver prices slipped 38 cents to $27.80 and have dropped more than 25 percent since late-February. Nevertheless, options order flow on PAAS seemed bullish, as 13,000 calls and 3,200 puts traded on the Vancouver-based silver miner. January 25 calls, which are 46 percent out-of-the-money, were the most actives. More than 5,000 traded, including a 3000-lot for 85 cents when the market was 75 to 90 cents. June 18 and January 20 calls were also busy. The stock fell more than 40 percent from late-February until earnings were reported on May 16. PAAS then hit a 52-week low of $14.80 before rebounding 15.7 percent through today. The call buying might reflect expectations that shares are oversold and are due to recover more of the big losses in the weeks/months head.

Bullish trading was also seen in American Eagle Outfitters (AEO), Coventry Healthcare (CVH), and Manitowac (MTW).

Wednesday's Bearish Trading
Hewlett Packard (HPQ) weighed down the Dow Jones Industrial Average. Shares lost 3.2 percent to $21.08 and were the biggest losers in the Dow after peer Dell Computer posted weaker-than-expected earnings and issued a disappointing sales forecast. Trading in HP options was brisk. 134,000 calls and 121,000 puts traded on the stock. The top trades were in the Weekly options that expire in two days. One investor apparently bought 5,000 21 puts for 96 cents and sold 5,000 19 puts at 21 cents, setting up a Weekly 19 ñ 21 put spread for a 75-cent net debit. HP is out with earnings after the closing bell and is up to $22.63 per after announcing lower profits and plans to cut jobs. If shares stay above $21, the 21 and 19 puts will expire worthless and the debit for a Weekly 19 ñ 21 would be at risk. If shares give back the gains and fall to $19 or more by Friday afternoon, the Weekly 19 ñ 21 spread will be worth $2.

Bearish trading was also seen in RedHat (RHT), Anadarko Petroleum (APC), and Abbot Labs (ABT).

Index Recap
It was another busy day in the CBOE Volatility Index (.VIX) index trading pit. The marketís ìfear gaugeî rallied early to 24.62, but then gave back the gains in afternoon action and lost .15 to 22.33. In options trading, 349,000 calls and 130,000 puts traded on the index. The top trade was 16,750 June 30 calls for $2.27 per contract. The trade surfaced in morning action and might have been a short-term call purchase to hedge the risk of increasing volatility. However, after the late-day reversal, the market for the June 30 call on VIX is now $1.60 to $1.75. 37,693 contracts traded total, making it the most active options in the volatility index today. July 32.5, June 24, and June 32.5 calls were the next most actives.

Analyzing the ETF Market
Bearish sentiment was seen in some of the financial ETFs Wednesday. SPDR Financials (XLF) fell in morning trading, only to erase the losses and finish up a nickel to $14.06. Options volume was 85,000 calls and 281,000 puts. June, July and August 13 puts were among the most actives. Meanwhile, the Proshares UltraShort Financials (SKF), which is a leveraged ETF designed to move inverse to the sector, gave up early gains and finished down 37 cents to $48.05. SKF options volume hit 4.5X the daily average, with 7,000 calls and 2,140 puts traded on the ETF. Deep out-of-the-money July 105 calls were the most actives. High volume in downside puts on XLF and upside calls on SKF seems to reflect the extreme levels of bearish sentiment that have developed towards the banks and brokers during the market decline in May. The extreme negativity might have created an oversold market and set the table for the dramatic rebound Wednesday. Important Information: Inverse ETFs are designed to achieve their investment objective on a daily basis are not designed to track the underlying index or benchmark over a longer period of time. Inverse and leveraged ETFs that are reset daily are unsuitable for investors who plan to hold these products for longer than one trading session. Over longer periods of time, leveraged and inverse ETF performance can differ significantly from their daily objective due to the effects of compounding.



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