Unusual Options Activity Review: WFR, CCL, IP, ARO, P, AAPL, EMN, VCLK, HAS, VIX, EWJ
Thursday's Bullish Trading
An interesting spread trades in silicon wafer company MEMC (WFR). Shares were up 8 cents to $2.38 on the day, but have had a rough stretch lately. The stock was at almost $7 per share at this time last year, but lost nearly two-thirds of its value since that time. On the options front, the top trades on the stock were part of a "diagonal" call spread, in which the investor apparently bought 6,000 November 2.5 calls on WFR for 18 cents and sold 6,000 December 3 calls at 12 cents each. The Nov 2.5 – Dec 3 call spread, for a 6-cent debit, appears to be a new position (because volume exceeds open interest in both contracts). If so, the investor is positioned for the stock to move beyond $2.50 through the November expiration, but probably doesn't want the stock to move beyond $3 by the December expiration (because they are short the $3 calls in the December term). WFR announced Thursday that it will report earnings on November 7, which is before the Nov expiration. Shares jumped 22 cents, or 10.5 percent, on 8/8 after the last report.
Bullish trading was also seen in Carnival Cruise (CCL), International paper (IP), and Aeropostale (ARO).
Thursday's Bearish Trading
Pandora (P) shares came under fire and tripped a circuit breaker in afternoon trading Thursday on reports Apple Computer (AAPL) was developing a competitive Internet radio service. Pandora shares lost $1.09 to $8.20 in very active trading of 16.4 million shares. Meanwhile, 13,000 calls and 11,000 puts traded on the stock. December 6 puts which are now 26.8 percent out-of-the-money and expiring in 8 weeks, were the most actives in the Internet radio company. Nearly 3,000 traded. Some investors might have been taking positions in the downside puts on concerns of additional negative headlines on the stock in the weeks/months ahead.
Bearish trading was also seen in Eastman Chemical (EMN), ValueClick (VCLK), and Hasbro (HAS).
CBOE Volatility Index (.VIX) dropped .21 to 18.12 and, although there was little movement in the volatility index, options in the VIX pit were busy Thursday. 554,000 calls and 105,000 puts traded a ratio of more than five-to-one. One large spread trade drove much of the action after an investor sold 57,000 November 21 – 35 call spreads on the volatility index at 95 cents and bought 100,000 December 23 – 35 call spreads for 98 cents per spread. The hefty trade appears to be a position adjustment. That is, the investor might have been long the Nov 21 – 35 spread prior to Thursday. They're now selling to close that position, while opening a new trade in the December 23 – 35 call spread. If so, they're apparently extending a bullish volatility play out an additional month.
Analyzing the ETF Market
iShares Japan Fund (EWJ) added 7 cents to $9.17 and an interesting trade on the ETF Thursday was a 30,000-contract block of June 9 calls, sold at an average of 57.5 cents per contract, according to a source on the exchange floor. Since open interest in EWJ Jan 9 calls is only 130 contracts, the hefty premium sale appears to be an opening position. The contract is already 17 cents in-the-money and by writing the calls, the investor seems to be expressing the opinion that EWJ will see limited upside through the first half of 2013. It's possible that an investor wrote the calls against a position in shares as part of a covered call or buy-write. If so, they are probably a willing seller of the shares (to have them called away) at the $9 strike through the June expiration. At that point, the profit (or loss) is equal to $9 minus the cost per share of the stock minus the premium collected minus the transaction costs.
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