Unusual Options Activity Review - ATVI, PAL, Q, SKX, SAH, WLP, PMCS, ELNK, VIX, SMN

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Bullish Flow

Activision Blizzard (ATVI) shares gained 37 cents to $12.58 and closed near session highs Wednesday. Shares benefited from positive analyst comments, after MKM Partners raised their fourth quarter earnings outlook on expectations of strong sales of ATVI's latest version of Call of Duty. Shares gained and options activity heated up, with 15,000 calls and 1,430 puts traded. October and March calls at the $13 strike were the most actives, as it appears some investors were buying to open new positions in anticipation of a move beyond $13 in the days and months ahead.

Bullish trading also picked up in North American Palladium (PAL), Qwest (Q), and
Sketchers (SKX).


Bearish Flow

Sonic Automotive (SAH), a Charlotte, NC auto dealership, finished down 41 cents to $9.93 and options volume hit 14X the usual on increasing interest in February puts at the 7.5 line. 3,675 contracts traded on the day. In addition, with 93 percent of the trades hitting ask-side and existing open interest of only 227, it looks like put buyers were taking positions in anticipation of a move below $7.5 by mid-February 2010. Implied volatility moved up to 90, from about 86 the day before.

Bearish trading also surfaced in Wellpoint (WLP), PMC Sierra (PMCS), and Earthlink (ELNK).




Index Trading

Trading remains relatively uneventful in the index market. 478,000 puts and 357,000 calls traded across all the cash indexes, which represents about 85 percent of the normal levels. Meanwhile, the CBOE Volatility Index (VIX) fell 1.02 to 24.68 and finished near session lows after the S&P 500 traded in a narrow 8-point range. In addition, not only is volatility low, but there isn't much "event risk" on the horizon. After tomorrow's same store sales and weekly jobless claims numbers, there is no meaningful economic data until retail sales next Wednesday.


ETF Trading   

Proshares Ultra Short Basic Materials Fund (SMN) fell 17 cents to $10.69 and one investor made a substantial bet on a move higher in the leveraged fund, which moves (2X) the inverse to the basic materials sector. In midday trading, this options strategist apparently bought 2,500 November 10 calls while selling 2,500 November 13 calls. If so, they paid a $1 net debit and stand to make $2 if the bearish fund rallies to $13 or more by the November expiration.


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