Unusual Options Activity Review: BA, DUK, HAL, ONNN, C, TIBX, FAST, CX, .VIX, QQQ

Posted June 4th, 2012 by Joseph Cusick in Unusual Activity

Unusual Options Activity Review For Friday, June 1, 2012

Friday's Bullish Trading
Boeing (BA) was down $2.37 to $67.24 and one of thirty Dow stocks to close in the red Friday. Not a single member of the industrial average ticked into positive territory during the trading session. Options on the aerospace and aircraft manufacturer were more active than usual. 14,000 calls and 11,000 puts traded in Boeing Friday. The top trades were part of a spread in the longer-term January 2014 options. An investor apparently bought 2,000 January [2014] 79.5 calls on Boeing for $9.85 sold 2,000 Jan14 90 calls at $2.50. The spread, for a $7.35 debit, appears to be a new position. The investor might see recent weakness in the stock as an opportunity for a bullish long-term move in BA. However, rather than buying shares outright, they're taking a position in long-dated calls that give the right to buy (or call) the stock for $67.5 through January 2014. Selling the $90 calls helps to finance some of the premium paid for the 67.5 calls, and also limits the upside beyond $90 per share. In other words, the investor is possibly looking for the stock to climb above current levels (breakeven of a call spread at expiration is the lower strike plus the debit), but not significantly beyond $90, through early-2014.

Bullish trading was also seen in Duke Energy (DUK), Halliburton (HAL), and ON Semiconductor (ONNN).

Friday's Bearish Trading
Citigroup (C) loses $1.12 to $25.39 on a volatile day on Wall Street. Options volume on the bank included 84,000 calls and 73,000 puts, which is about typical volume for Citi these days. The top trades in Citi options were part of a three-way spread. In this advanced options play, 4,330 Jun 25 puts were sold on Citi at 70 cents per contract, 4,330 July 25 puts bought for $1.61 and 4,330 July 20 puts sold at 43 cents. All three legs of the spread traded on the International Securities Exchange and data from ISE indicate that all three legs were opening positions. In this spread, the investor was selling Jun 25 puts to buy a July 25 ñ 20 put spread, paying a 48-cent debit. If so, they seem to expect shares to hold above $25 (-1.5%) over the next two weeks and for the June 25 puts to expire worthless at the June expiration (14 days), but then for Citi shares to fall below that level by mid-July and for the spread to widen before the July expiry (49 days).

Bearish trading was also seen in Tibco Software (TIBX), Fastenal (FAST), and Cemex (CX).

Index Recap
CBOE Volatility Index (.VIX) added 2.60 points to 26.66 and finished at session highs Friday. VIX has rallied 26.7 percent in just three days and is now at its best levels so far in 2012. Trading in the VIX pit was active, and volume clearly lopsided. 344,000 calls and 93,000 puts traded on the volatility index Friday. The ten most active VIX options on the day were call options. September and October 30s were the most actives. More than 30,000 traded in both contracts, as some investors are now possibly looking beyond this summer and to the historically volatile fall months of September and October.

Analyzing the ETF Market
Puts on the PowerShares QQQ (QQQ) were busy for a second day. 798,000 contracts traded on the ETF yesterday. Shares lost $1.65 to $60.41 and volume in QQQ options Friday was roughly 828,000 puts and 276,000 calls. June 60 puts, which are now 41-cents out-of-the-money, were the most actives. 144,144 contracts traded. July 55 puts saw the second most volume. 110,800 contracts changed hands. The so-called Qs are an exchange-traded fund designed to equal roughly 1/40th of the NASDAQ 100 Index (.NDX). Some investors were probably taking positions in the downside June 60 and July 55 puts on QQQ to hedge stock portfolios on concerns about further volatility in the shares listed on the NASDAQ Stock Market.

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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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