Unusual Options Activity Review: BMC, F, LXK, GRPN, PM, FSLR, VRNG, ACIW, VIX, XLY

Posted October 8th, 2012 by The Options Insider in Unusual Activity

Friday's Bullish Trading
BMC Software (BMC) lost a nickel to $43.34 Friday, but finished up 4.5 percent on the week after a story circulated about the software-maker Monday. According to the report, BMC has hired bankers to explore a possible sale of the company. Shares were up 3.5 percent on the news Monday and then added a bit more in the days that followed. Friday, options volume in BMC was 11.5X the daily average and driven by a substantial call spread. In this strategy, the investor bought 10,000 January 45 calls on the stock for $2.25 and sold 10,000 January 50 calls at 60 cents. The Jan 45 – 50 call spread, for a $1.65 debit, appears to be a new position (volume exceeds open interest). If so, the investor seems to have executed a rather large trade that a buyout or some other corporate event will help lift the stock to the high-40s by early-2013.

Bullish trading was also seen in Ford Motor (F), Lexmark (LXK), and Groupon (GRPN).

Friday's Bearish Trading
Phillip Morris (PM) was up 43 cents to $93.74 and notching new 52-week highs Friday. Shares of the consumer products company have now rallied nearly 20 percent year-to-date. The options order flow wasn't very bullish Friday, however. Options volume was 2.5X the daily average and put volume outpaced call activity by a ratio of almost 9-to-1. About 27,000 puts and 2,750 calls traded on PM. The top trade was a buyer of 14,000 October 87.5 puts for 14 cents per contract on ARCA. A source on the floor confirms the puts were bought and, at the end of the day, 18,490 contracts traded against 3,441 in open interest. The action seems a little unusual. October 87.5 puts on PM are now 6.7 percent out-of-the-money and expiring in two weeks. A shareholder might have bought the block of puts to hedge earnings risk. The company is due to report earnings on October 18, which is the Thursday before expiration Friday.

Bearish trading was also seen in First Solar (FSLR), Vringo (VRNG), and ACI Worldwide (ACIW).

Index Recap
CBOE Volatility Index (.VIX) lost another .22 points to 14.33 and finished down 8.9 percent on the week. The VIX has been dropping over the past four days, as the S&P 500 finished little changed Friday (down .47 to 1,460.93) and added about 20 points, or 1.4 percent, on the week. Trading in VIX options was relatively light, but the activity is interesting. 332,000 calls and 128,000 puts traded in the VIX pit and the most actives were the November 20, 22, 24, and 30 calls on the index. Some investors might be buying November upside calls on the volatility index on the view that the recent decline presents an opportunity to buy volatility in front of the early-November Presidential elections.

Analyzing the ETF Market
SPDR Consumer Discretionary Fund (XLY), which holds names like Home Depot, Target and Ford, finished the day up 14 cents to $47.61 and options volume on the exchange-traded fund was 5.5X the daily average, driven by a 31000-contract block of October 47 puts for 20 cents per contract on the ISE. Data from the exchange was reporting an opening customer buyer. At the end of the day, more than 36,000 October 47 puts traded on XLY. The contract is 61 cents, or 1.3 percent out-of-the-money and expiring in two weeks. A shareholder with a large portfolio of consumer discretionary names might have bought the puts as a short-term hedge.

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