Unusual Options Activity Review: P, EXPE, SWKS, ANR, FAST, MAS, HCA, SYMC, VIX, XRT

Friday's Bullish Trading
Pandora (P) closed down 8 cents to $10.50 on relatively light volume of 4.4 million shares and some investors in the options market are tuning in to call options on the stock Friday. The top trade is a block of 7,500 October 9 calls for $1.65 per contract. The bid-ask was $1.45 to $1.65 and open interest is 899 contracts. The opening of October calls on Pandora might be rolling out of September 10 calls, which are 46 cents in-the-money and expiring after Friday. Rather than holding the September 10 calls through the expiration and exercising the contract, the investor is closing the position and opening a new similar position in the Oct 10s. Note that, if a contract is in-the-money at expiration, it will be automatically exercised per OCC rules. In this case, the investor would buy (call) 100 shares of stock at $10 for every in-the-money September call option held into the expiration. Of course, an options holder (of American style options) can exercise their contract any time prior to expiration, if they choose.

Bullish trading was also seen in Expedia (EXPE), Skywork Solutions (SWKS), and Alpha Natural Resources (ANR).

Friday's Bearish Trading
Fastenal (FAST) had unusual volume heading into the expiration, as some investors were apparently opening positions in the September puts on the stock. Shares of the Winona, MI industrial and construction company closed down 27 cents to $43.64. Earlier Friday when the stock was still north of $44, an investor took a position in 4,900 September 44 puts on the stock for 15 cents per contract. Data from one of the exchanges indicate the investor bought the out-of-the-money puts to open a new position. The contract closed in-the-money. It is not clear what was motivating the activity and it is somewhat unusual because September options are due to expire after Friday. For whatever reason, one or more investors were apparently taking positions in anticipation of intraday weakness in FAST.

Bearish trading was also seen in Masco (MAS), HCA, and Symantec (SYMC).

Index Recap
Trading was active in the options market Friday and overall volume totals in September appear to be better than August. The average daily volume so far this month is about 18.3 million and up nearly 35 percent from the pace seen in August – when average daily volume was about 13.6 million. Interestingly, volatility hasn't changed much despite the increased activity. CBOE Volatility Index (.VIX) closed down .09 to 13.98 in afternoon action Friday. Is it possibly the volatility can remain low while volumes increase? That seems to be an important question facing options traders heading into the historically volatile month of October.

Analyzing the ETF Market
An interesting options strategy was initiated in the SPDR Retail Trust (XRT) Friday. Shares, which represent ownership in a basket of different retailing companies, closed down 25 cents to $64.02. Earlier Friday one investor sold 28,000 October 60 puts on XRT at 16 cents to buy 28,000 October 68 calls for 14 cents. The bullish Oct 60 – 68 risk-reversal traded on ISE and data from the exchange confirm that puts were sold to buy calls. If so, the combo seems to be a rather aggressive play targeting a big move higher in the retail sector though the October expiration – which is in four weeks from today. Many of the retailers will release same store sales numbers in two weeks.

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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.