Unusual Options Activity Review: WMB, ACN, YHOO, RF, RIMM, SKYW, INN, GMXR, VIX, SPX, SPY
Thursday's Bullish Trading
Williams Companies (WMB) added $1 to $34.98 and options on the stock were actively traded Thursday after natural gas prices rose 7 cents to $3.29 on the heels of weekly inventory data. About 27,000 calls and 1,500 puts traded on the natural gas producer. February 40 calls, which are 15.3 percent out-of-the-money and expiring in 20 weeks, were the most actives on the stock. 16,176 traded against just 68 contracts in open interest. WMB saw interest two days ago as well, led by large blocks of October call options. Shares have performed well lately. WMB is up 28 percent in a little more than three months and back within striking distance of the $35.39 per share 52-week high set two weeks ago. Some investors might be taking positions in upside calls on the stock on the view higher natural gas prices will fuel further gains in the stock in the weeks/months ahead.
Bullish trading was also seen in Accenture (ACN), Yahoo (YHOO), and Regions Financial (RF).
Thursday's Bearish Trading
This isn't really a bearish story (there weren't many to write about), but Research In Motion (RIMM) has seen heavy trading this week ahead of its earnings release. The stock was up 14 cents to $7.14 Thursday in very active trading of 56 million shares ahead of the news. Options volume was 5X the daily average. 144,000 calls and 96,000 puts traded in RIMM. The Weekly 8 calls, which were 86 cents out-of-the-money at the end of trading Thursday and expire after the close Friday, were the most actives on the stock. More than 30,500 traded and the flow seemed almost evenly split between buyers or sellers. So, was it better to be long or short the RIM Weekly 8 call ahead of the results? Only time will tell. RIMM was trading up $8.28 in the after hours and if the gains hold, the contract will be 28 cents in-the-money Friday. It last traded for 17 cents per contract, but also note that changes in implied volatility will affect the premiums as well. Implied volatility in the options on a stock typically falls after earnings are reported. It is known as Volatility Crush.
Bearish trading was also seen in Skywest (SKYW), Summit Hotel Properties (INN), and GMX Resources (GMXR).
CBOE Volatility Index (.VIX) dropped 1.97 points to 14.84 Thursday and erased much of the 19.5 percent rally recorded during the previous three days. VIX is now up 6.2 percent on the week. For the quarter, the market's "fear gauge" is down 13.1 percent. The index tracks the expected volatility priced into S&P 500 Index (.SPX) and has been trending lower in the past three months, as the S&P 500 has gained 6.2 percent since June. Some players in the options market might be looking for a trend change in the fourth quarter. However, as October 30, October 20, November 25 and October 35 calls are the largest open interest positions in VIX options Thursday. Open interest is a measure of the number of contracts that have been opened in a specific option. The numbers are updated once daily.
Analyzing the ETF Market
Overall trading volumes were bit light Thursday, but might pick up again Friday due to end-of-quarter position squaring. Friday is the last business day of September and therefore also the last business day for the third quarter 2012. In the options market, about 7.5 million calls and 6.1 million puts traded across the exchanges. The total volume of 13.6 million contracts is a bit below the average for the month, which is 14.5 million contracts, according to Trade Alert data. In the exchange-traded funds world, about 5 million contracts traded (2.4 million calls and 2.6 million puts), compared to average daily volume of 5.4 million. SPDR 500 Trust (SPY) Quarterly 145 calls, 144 puts, and 144 calls were the most active ETF options heading into the final day to trade the contracts.
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