Unusual Options Activity Review: ATVI, ABT, CCE, ALL, NOK, SNV, Z, TSLA, VIX, SPX, XRT
Tuesday's Bullish Trading
Activision Blizzard (ATVI) slid 41 cents to $11.64 Tuesday and options volume on the video-game company was 20X the daily average, being driven by an interesting three-way spread on the stock. In this options strategy, the investor sold 15,000 February 10 puts on ATVI at 21 cents per contract, bought 15,000 February 13 calls for an average of 49.5 cents per contract, and sold 30,000 February 15 calls at 12 cents per contract. In other words, they sold downside 10 puts to buy an upside 13 – 15 (1X2) call ratio spread. 4.5 cents was paid (49.5 – 21 – 12 – 12) to initiate spread and it appears to be a new position (because volume exceeds open interest in all three contracts). If so, the trade is a bullish play on ATVI that reaps its best profits if the stock climbs to $13 by the February 2013 expiration. Importantly, since the investor is writing 10 puts, they are probably a willing buyer of the stock at that price and stand ready to be assigned on the short put position. There is additional risk to the upside as well, due to the short position in Feb 15 calls.
Bullish trading was also seen in Abbott Labs (ABT), Coca Cola Enterprises (CCE), and Allstate (ALL).
Tuesday's Bearish Trading
Nokia (NOK) October 3 calls were among the most actively traded options contracts traded Tuesday. More than 70,000 Oct 3 calls traded on the Finnish telecommunications company. Shares lost 4 cents to $2.70 and much of the volume was due to one transaction, after an investor sold 66,000 contracts for 13 cents per contract. Open interest in the NOK Oct 3 call is 43K and so the hefty premium sale appears to be a new position. The contract is 30 cents, or 11.1 percent, out-of-the-money and expiring in 24 days. Tuesday's options trader is probably writing the calls on the view shares will not rally beyond $3 before the contract expires. An investor with a large position in Nokia might have initiated the premium sale against stock as part of a covered call or buy-write play Tuesday.
Bearish trading was also seen in Synovus Financial (SNV), Zillow (Z), and Tesla Motors (TSLA).
CBOE Volatility Index (.VIX) saw a late-day pop and finished up 1.28 to 15.43 after the S&P 500 Index (SPX) faltered in afternoon trading and gave up 15.30 points to 1,441.59. Volume in the S&P 500 pit was relatively light Tuesday, however, with about 210,000 calls and 344,000 puts traded on the index. In fact, there was almost as much volume in the VIX pit, which is an index that tracks the volatility priced into SPX options. 328,000 calls and 175,000 puts traded on the volatility index. VIX October 20, October 25, November 19, November 25 and November 35 calls were the day's most active index contracts – as some investors might be taking positions in VIX upside Oct and Nov calls on concerns about increasing market gyrations heading into the historically volatile month of October.
Analyzing the ETF Market
SPDR Retail Trust (XRT) lost 89 cents to $62.66 and options volume on the exchange-traded fund jumped to 4.5X the daily average. About 75,000 puts and 3,700 calls traded in XRT Tuesday. The top trades were part of a spread, in which the investor bought 25,000 November 63 puts on the fund for $1.58 and sold 25,000 November 58 puts at 33 cents. The Nov 63 – 58 put spread, for $1.25, traded on ISE and data from the exchange confirm that the spread was bought to open. If so, it represents a bearish play on the retail stores, with a max payout if shares fall to $58 or less through the expiration. A shareholder with a large portfolio of retail names might have initiated the trade to help hedge the portfolio.
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