Unusual Options Activity Review: MUR, RENN, SKS, AA, AIG, MBI, MDVN, MT, VIX, SPX, QQQ

Thursday's Bullish Trading
Murphy Oil (MUR) has seen two days of increasing options action after CNBC reported midday Wednesday that Third Point might take an activist shareholder role in the El Dorado, AR oil and gas refiner. The stock rallied 4.5 percent Wednesday and was up another 22 cents to $58.43 Thursday. Meanwhile, options volume on MUR was 14.5X the daily average. 31,000 calls and 5,290 puts traded on the stock. The largest trade was a buyer of 20,000 January 62.5 calls on MUR for a $1.89 per contract. This looks like a new position (volume exceeds open interest) and to reflect the view Murphy might rally to more than $62.5 through mid-January 2013. The stock has a 52-week high of $65.6 dating back to late-February.

Bullish trading was also seen in RenRen (RENN), Saks (SKS), and Alcoa (AA).

Thursday's Bearish Trading
AIG was up 74 cents to $34.95 and extended a winning streak to four days and 6.6 percent. The stock moved higher Thursday after Credit Suisse raised their price target on the stock to $35 from $31. However, sentiment in the options market seemed mixed  as 87,000 calls and 61,000 puts traded in AIG. The top trades were part of a three-way spread, in which the investor sold 5,000 November 37 calls on the stock at 49 cents to buy 5,000 October 32 puts for 8 cents and also purchased 5,000 October 33 puts for 16 cents. The position seems to express the view that AIG will hold below $37 though the November expiration and might possibly fall to the low 30s through the Oct expiration, which is 15 days.

Bearish trading was also seen in MBIA (MBI), Medivation (MDVN), and Mittal Steel (MT).

Index Recap
"CBOE Volatility Index (.VIX), which tracks the expected volatility priced into S&P 500 options, fell 4.63 points to 40.82 after stocks surged in the final forty-five minutes of trading. The S&P 500 Index (.SPX) rallied from about 1,081 at 2:15 Central Time to close up 24.72 points to 1,123.95. Today's wild action triggered a lot of activity in the index market. 1.20 million puts and 810,000 calls traded across the S&P 500 Index, VIX, and other cash index products, which is about 1.3X the recent average daily levels, according to Trade Alert data." That was one year ago. Thursday, VIX lost .88 to 14.55 after the S&P 500 added 10.41 points to 1,461.40. Meanwhile, 505,000 calls and 577,000 puts traded on the index products. Recall that October 4, 2011 was an important turning point – a market bottom – and sentiment had turned extremely bearish. The opposite sentiment seems to still prevail.

Analyzing the ETF Market
The largest options trades Thursday were in the PowerShares QQQ Fund (QQQ). The Qs were up 24 cents to $69.35 and, according to a source on the CBOE, one investor bought 55,000 November 71 calls on the ETF for 68 cents and, within a minute, bought 45,000 November 72 calls for 39 cents per contract. These hefty blocks of upside calls on the Qs appear to be new positions in the fund. The QQQ is an ETF that holds the same stocks as the NASDAQ 100, which in turn is an index consisting of the top 100 non-financial names trading on the NASDAQ Stock Market. Since large technology names dominate the NASDAQ, today's call buying appears to be large bullish tech sector view.

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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.