Unusual Options Activity Review: FRX, ANN, TIVO, PG, KO, ILMN, AMD, HST, VIX, XLF
Monday's Bullish Trading
Forest Labs (FRX) saw unusual activity Monday. The stock wasn't doing much until about 1:00 pm ET, but then saw a spike and finished the day up 80 cents to $36.49 in relatively active trading of 2.9 million shares. Meanwhile, options volume was 18.5X the daily average, with about 28,000 calls and 500 puts traded on the New York-based pharmaceutical company. One player bought a 13,000-contract block of January 41 calls on FRX for 35 cents per contract, according to a source on the exchange floor. At the end of the day, more than 16,500 contracts traded and the Jan 37 and 38 calls on FRX were busy as well. It's not clear what motivated the increased activity in FRX Monday. It seems somewhat unusual, because there were no company headlines on the ticker.
Bullish trading was also seen in Ann Taylor (ANN), TIVO, and Procter & Gamble (PG).
Monday's Bearish Trading
Coca Cola (KO) added 9 cents to $38.12 and was one of 11 Dow stocks to post gains Monday. One player in the options market seems concerned that Coke might lose its fizzle through early-2014, as a hefty January 2014 37.5 – 25 put spread trades on the beverage company. In this strategy, the investor apparently bought 13,000 Jan  37.5 puts on the stock for $3.50 and sold 13,000 Jan  25 puts at 37 cents. If bought-to-open, the spread, for $3.13, represents a bearish play that offers a max payout if shares tumbled to $25 per share or less by January 18, 2014. It's possible that a large shareholder initiated the trade to help hedge a stock position in KO for the next 15 months.
Bearish trading was also seen in Illumina (ILMN), Advanced Micro (AMD), and Host Hotels (HST).
CBOE Volatility Index (.VIX) finished up .17 to 14.15 and some players in the options market seem to be bracing for an increase in market volatility, as about 305,000 calls and 79,000 puts traded in the VIX pit Monday – a ratio of almost four-to-one. October 20, November 25, and November 30 calls were the most actives on the index. The September contract on VIX expired last week and the settlement value for the index, of 14.03, was the lowest levels since the summer of 2007. Importantly, however, options on the index are not derived from the spot index itself, but on forward values on the index – which are typically higher than the actual VIX index. The Chicago Board Options Exchange [CBOE] lists the complete product specifications and additional educational materials about the VIX contract on their web site.
Analyzing the ETF Market
SPDR Financials (XLF) saw a flurry of put activity Monday. XLF, which represents ownership in all of the financial-related names from the S&P 500, finished the day up a penny to $15.84. Meanwhile, options volume was 2.5X the daily average. About 486,000 puts and 39,000 calls traded on the index. The top trades were part of a spread, in which the investor apparently bought 165,000 December 15 puts on XLF for an average of 34.5 cents and sold 165,000 December 13 puts at 8 cents. If bought-to-open, the Dec 13 – 15 put spread on XLF, for 26.5 cents, is a bearish play that makes its best profits if shares fall to $13 or less through the expiration, which represents a 17.9 percent drop over the next 88 days. Nearly 200,000 December 15 puts traded in XLF Monday.
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