Unusual Options Activity Review: ANR, CNX, ACI, BTU, YUM, PCS, WSM, RENN, SPX, VIX, XLF
Tuesday's Bullish Trading
A number of coal names saw relative strength and bullish order flow despite weakness in the broader market Tuesday. Alpha Natural Resources (ANR), for example, was up 7.4 percent to $7.28 in active trading of 25 million shares. Meanwhile, 41,000 calls and 16,000 puts traded on the coal producer. Weekly 8 calls, which are now 9.9 percent out-of-the-money and expiring at the end of this week, were the most actives. 11,132 contracts traded. Weekly 7.5 and October 8 calls were the next most actives. In last week's Presidential debate, Governor Mitt Romney stated flat out, "And by the way, I like coal". Therefore, the recent interest in names in the coal space might reflect some of the recent changes in the polls related to the Presidential race.
Bullish trading was also seen in Console Energy (CNX), Arch Coal (ACI), and Peabody Energy (BTU).
Tuesday's Bearish Trading
Yum Brands (YUM) might be a name worth watching Wednesday. The company, which owns KFC, Taco Bell, Pizza Hut and other brands, was due to report earnings after the closing bell Tuesday and trading in the options on the stock was busy ahead of the news. The stock was down 90 cents to $66.04 and players were hungry for YUM October 65 puts ahead of the news. The contract expires at the end of next week and is 1.6 percent out-of-the-money. More than 13,300 contracts traded against 13,570 in open interest. October 62.5 puts were the second most actives in the stock. More than 7,000 contracts changed hands. Total volume was 31,000 calls and 33,000 puts, which is 9X the daily average for the name. After the closing bell, the company was out with earnings of 99 cents per share on $3.57 billion in revenues. Analysts were expecting 97 cents on $3.64 billion. The stock is seeing a positive initial reaction to the report – up to $68.50 in the after hours.
Bearish trading was also seen in MetroPCS (PCS), William Sonoma (WSM), and RenRen (RENN).
Volatility picked up a bit Tuesday, but there were no signs of panic in the options order flow. In the index market, for example, 527,000 calls and 584,000 puts traded on the S&P 500 Index (.SPX), CBOE Volatility Index (.VIX) and other index products, which is only 80 percent the daily average volume for the index pits these days, according to Trade Alert data. SPX lost 14.40 points to 1,441.48 and VIX, which tracks the expected volatility priced into S&P 500 Index options, rose 1.26 to 16.37. Yet, given the overall volume totals, it doesn't seem that there's any real panic in the options market yet. Bearish sentiment is typically at an extreme when VIX spikes and a jump in SPX index put activity also accompanies the move higher in the volatility index.
Analyzing the ETF Market
The three most active options Friday were puts on the SPDR Financial ETF (XLF). Shares lost a dime to $15.95 and much of the flow was driven by a January 13 – 15 put spread that traded for 27 cents, 80000X. In this plain vanilla spread, the investor apparently bought 80,000 January 15 puts on the financial ETF for 35 cents and sold 80,000 of the January 13 puts at 8 cents. If opening, the position is a bearish one that makes its best profits if shares fall to $13 or less through the January 2013 expiration. More than 80,000 traded in both contracts, making them the two most actively traded options Tuesday. December 15 puts on XLF were today's third most actives. 71,568 contracts changed hands. At the end of the day, total volume in the financial ETF.
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