Unusual Options Activity Review: AMLN, IDIX, ELN, CIEN, LYB, PAY, BID, SVNT, .VIX, .SPX, EEM

Posted May 29th, 2012 by Joseph Cusick in Unusual Activity

Unusual Options Activity Review For Friday, May 25, 2012

Friday's Bullish Trading
Amlyin Pharmaceuticals (AMLN) is up $2.03 to $27.83 on heavy volume of almost 7 million shares. The stock saw a midday spike on reports that several companies, including Merck and Sanofi, are interested in acquiring the company. AMLN has been the subject of takeover speculation since March 27 when the company rejected at $22 per share offer from Bristol Myers. The company has since started a round of bidding and Friday's rally in the stock seems to reflect hopes for an official buyout announcement. Meanwhile, 31,000 calls and 15,000 puts traded on the biotech. June 28 and 30 calls are the most actives and implied volatility is falling 25 percent to 55.

Bullish trading was also seen in Idenix Pharmaceuticals (IDIX), Elan (ELN), and Ciena (CIEN).

Friday's Bearish Trading
LyondellBassell (LYB), a Rotterdam-based specialty chemicals company, is up 58 cents to $39.55 and is up 6.7 percent on the week. However, shares remain 13.5 percent below the levels seen on April 27, and just before the stock started trending lower on the heels of disappointing earnings news. The options order flow on the stock seems to reflect concerns about additional losses in LYB. 5,190 puts and 980 calls traded on the stock Friday. June 35.5 puts, which are 10.2 percent out-of-the-money and expiring in three weeks, are the most actives. 2,000 traded. The biggest trade in the name is a spread, in which the investor apparently sold 600 June 37.5 puts on the stock at 80 cents, bought 600 December 37 puts for $4.60 and sold 600 December 25 puts at 95 cents. The spread, for $2.85, traded 1000X and might be rolling out of a bearish position from June to a Dec put spread. If so, it seems to express the view that the stock might fall all the way to the mid-20s by yearend.

Bearish trading was also seen in Verifone (PAY), Sotheby's (BID), and Savient Pharmaceuticals (SVNT).

Index Recap
Trading slowed across the options market heading into the three-day Memorial Day weekend, but options on the CBOE Volatility Index (.VIX) remain actively traded. VIX is up .63 to 22.17 after the S&P 500 Index (.SPX) fell in afternoon action and is now down 4.90 points to 1,315.78. In options action, 226,000 puts and 139,000 calls traded on VIX. Interestingly, July 18 and 17 puts are the most actives, with 88,295 and 61,620 contracts traded respectively. Despite some large intraday swings this week, the actual volatility of the S&P 500 based on the past 30 closing prices is only 12 percent. VIX tracks the expected volatility for the S&P 500. Some investors might be buying July 17 and 18 puts on the index on the view that expected or implied volatility priced into SPX options might begin to better reflect the much lower levels of actual or realized levels of volatility. In other words, they believe that VIX will fall through mid-July.

Analyzing the ETF Market
Two of the largest trades Friday are in iShares Emerging Markets Fund (EEM), which is down 21 cents to $37.12, after one investor sold 39,000 September 38 ñ 34 put spreads on the ETF at $1.49. The spread probably rolls a position opened on May 11 when 39,000 September 38 puts were apparently bought on the ETF for $2.06, to open. Shares are down 7 percent since that time and the position is being liquidated at $3.17. A new position in September 34 was opened at $1.68 per contract.

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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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