Unusual Options Activity Review: HTZ, JPM, IMAX, GSK, LULU, SPX, VIX

Posted June 8th, 2012 by Joseph Cusick in Unusual Activity

Unusual Options Activity Review For Thursday, June 7, 2012

Thursday's Bullish Trading

Hertz (HTZ) was the subject of unusual options action Thursday. The underlying stock didn't do much. Shares slipped 14 cents to $12.37 on relatively light volume of 4.7 million shares. By way of comparison, average daily turnover is 6.3 million shares, according to Trade Alert. Yet, options volume was 2.5X the daily average. About 14,000 calls and 3,100 puts traded on the auto rental company today. The largest trade was a 5,000-lot of July 12 call options traded for $1.40 per contract on the electronic International Securities Exchange. Data from the ISE indicate that an investor bought the block to open a new position. At the end of the day, 7,580 July 12 calls traded on Hertz. July 14 calls were the second most actives. 2,650 contracts changed hands. It's not clear what was driving the higher call volumes in Hertz, as the stock was drifting lower in uninspired action and has now given up 23.7 percent since earnings were reported on May 2.

Bullish trading was also seen in Frontier Communications (FTR), JP Morgan (JPM), and IMAX.

Bullish trading was also seen in Barnes and Noble (BKS), Novagold ((NG), and Seagate Technology (STX).

Thursday's Bearish Trading

Human Genome Sciences (HGSI) lost 12 cents to $13.23 in relatively light volume of 3.5 million shares. Typical volume is about 4.4 million. Investors are in wait-and-see mode to determine if GlaxoSmithKline (GSK) will modify its $13 takeover offer of HGSI, which expires today. Human Genome Sciences has already rejected the offer and initiated a "poison pill" to prevent a hostile takeover of the company. Some investors might be hedging with short-term near-the-money put options on fear that GSK will walk away from the deal and trigger increased volatility in HGSI shares. Human Genome Sciences Jun 13 puts, which are 23 cents out-of-the-money and expiring at the end of next week, saw heavy trading. 12,650 contracts traded on the day.

Bearish trading was also seen in Lulumon Athletica (LULU), Lennar (LEN), and PMC Sierra (PMCS).

Index Recap

At the end of the day, it seemed like a relatively quiet day of trading. The S&P 500 Index (.SPX) was down just .14 points to 1,314.99 and CBOE Volatility Index (.VIX), slipped .44 points to 21.72. Yet, the market has been seeing some relatively large intraday swings so far in June, including a 16-point swing in the S&P 500 today. In addition, the 30-day statistical volatility of the S&P 500, which is based off of closing prices during the past thirty days, is now 17 percent. It was 13 percent at the end of May. So, volatility seems to be picking up a bit over the past week and volumes in the index market seem to be increasing as well. 885,000 calls and 927,000 puts traded across all index products today. VIX August 23 puts and September 29 calls were the most actives, with more than 100,000 traded in both contracts.

Analyzing the ETF Market

Market Vectors Gold Fund (GDX), which holds shares of major mining names like Barrick Gold and Newmont Mining, had a rough day. Shares finished down $1.63 to $45.99 after gold prices tumbled more than $42 to $1592 an ounce. The decline triggered volatility in shares of some of the gold mining names and one player in the options market seems to expect the trend to continue. They bought 20,000 July 38 ñ 44 put spreads on GDX for $1.20 debit. That is, they bought 20,000 July 44 puts on the ETF for $1.53 and sold 20,000 July 38 puts at 33 cents. If opening, the position offers its best payout if shares fall to $38 or less through the July expiration -- or a 17.5 percent tumble over the next 43 days.

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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.

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