Unusual Options Activity Review: KCG, GT, LPX, ANN, MRVL, SWY, WPZ, WFR, VIX, SPX, XHB

Wednesday's Bullish Trading
Knight Capital (KCG), the stock that was down in early-August after an errant algo trade triggered hefty losses for the firm, added 21 cents to $2.61 Wednesday in active trading of 9.7 million shares. By way of comparison, average daily volume for KCG is about 2.9 million shares. Meanwhile, options volume on the stock was 2.5X the daily average. 9,750 calls and 4,000 puts traded in the name. October 2.5 calls, which are now 11 cents in-the-money and expiring in 23 days, were the most actives. 4,496 contracts traded. January 2.5 puts, January 3 calls, August 2 puts, and October 3 calls were the next most actives. It's not clear what was driving the increased activity, as there were no company-specific headlines on Knight Wednesday. For whatever reason, players seemed to be showing increasing interest in shares and options on the firm in anticipation of the next move in the stock.

Bullish trading was also seen in Goodyear Tire (GT), Louisiana Pacific (LPX), and Ann Taylor (ANN).

Wednesday's Bearish Trading
Marvel Technology (MRVL), a Bermudian semiconductor company, hit 52-week lows and finished down 4 cents to $9.21 in active trading of 14.4 million shares after two separate brokerage firms downgraded the stock Wednesday. Options on MRVL were actively traded as well. 20,000 calls and 18,000 puts traded in Knight, which is about 5X the daily average. January 7.5 puts, which are now 18.6 percent out-of-the-money and expiring in 114 days, saw the most volume. More than 13,900 contracts traded. Some investors were possibly taking positions in the deep out-of-the-money puts on concerns the negative broker commentary will weigh on shares in the months ahead. MRVL has already dropped 25 percent since earnings were reported on August 16.

Bearish trading was also seen in Safeway (SWY), Williams Partners (WPZ), and MEMC (WFR).

Index Recap
CBOE Volatility Index (.VIX) has scored a three-day winning streak this week. The market's "fear gauge" jumped 1.38 points to 16.81 Wednesday and has rallied 19.5 percent since Friday. The rally comes as the S&P 500 (SPX) suffers a five-day losing skid heading into the last two trading days of the third quarter. SPX lost another 8.27 points to 1,433.32 Wednesday and attention now turns to the historically volatile month of October. 405,000 puts and 237,000 calls traded on the S&P. Meanwhile, 349,000 calls and 174,000 puts traded on VIX. January 26 calls on the volatility index were the most actively traded index option contract of the day. More than 58,400 contracts changed hands. Increasing volume in SPX puts and VIX calls is sometimes an indicator of increasing hedging activity among the institutional community.

Analyzing the ETF Market
SPDR Homebuilders Fund (XHB) loses 57 cents to $24.60 after a report showed New Home Sales down to a 373K annual rate in August, from 374K the month before and falling short of economist estimates of 380K. XHB was down and options volume on the ETF was 2.5X the daily average. 35,000 puts and 15,000 calls traded in the product. More than two-thirds of the put volume was concentrated in November 24 puts. 23,850 traded and it appears that buyers were paying between 75 and 80 cents for the contract Wednesday. XHB hit a 52-week high of $26.16 Friday, but is on a three-day 6 percent losing skid since that time. Interest in downside Nov 24 puts on the ETF seems to express concern about further losses for shares of the leading homebuilders in the weeks ahead.

-------------------------------------------------------------------------

Disclaimers
This article is provided for informational purposes only. No statement in this article should be construed as a recommendation to buy or sell a security or to provide investment advice. The content provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy and completeness. optionsXpress makes every effort to provide timely information to its recipients but cannot guarantee specific delivery times due to factors beyond our control.

Derivatives involve substantial risk and are not appropriate for all investors. Please read the "Disclosure Statement for Futures and Options" prior to investing in futures or options.

For investments using a straddle or strangle options strategy the potential loss is unlimited. Multi-leg option strategies are subject to multiple commissions. Profits may be eroded by the commission expended to open and close the positions and other risks apply.

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.