Unusual Options Activity Review - HD, AMKR, KKD, ADBE, NYT, ETFC, GGB, JBHT, .RUT, XLF
Bullish Flow
Home Depot (HD), the largest home improvement retailer, rallied 5.5 percent to $33.36 and was the best gainer in the Dow Jones Industrial Average Thursday. Meanwhile, Lowe's (LOW), the second biggest, gained $1.17 to $24.92 and options volume hit 7.5X the typical levels. 90,000 LOW calls and 28,000 LOW puts changed hands today. The biggest trade was a block of 12,252 January 26 calls at 66 cents when the market was 63 to 65 cents. The trade looks like an upside call buyer anticipating additional gains in Lowe's through early 2011. 24,850 January 26 calls traded total. December and January 24 call options on Lowe's saw brisk trading as well.
Bullish options action was also seen in Amkor Technology (AMKR), Krispy Kreme Doughnuts (KKD), and Adobe (ADBE).
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Bearish Flow
NY Times (NYT) saw interesting trading activity. Shares of the newspaper publishing company lost three cents to $9.07 and options volume increased to 6X the normal. 4,660 puts and only 75 calls traded in NYT Thursday. January 9 puts were the most actives and included several lots at the 75 and 80-cent asking price. 3,630 traded total and, since open interest is 788 contracts, it looks like some investors were buying to open new positions in these Jan 9 puts. The bearish trading might be a play on recent reports that newspaper-advertising revenues are slowing, according to the Newspaper Association of America.
Bearish flow also picked up in Etrade Financial (ETFC), Gerdau (GGB), and JB Hunt (JBHT).
Index Trading
Russell 2000 Small Cap Index (.RUT) call spreads were busy for a second day. The index of smaller-sized companies added 8.01 to 751.20 today and is up more than 24 points, or 3.3 percent, since Tuesday. Meanwhile, 121,000 calls and 41,000 puts traded on the Russell Thursday. Like yesterday, some investors were showing interest in the December 790 ñ 800 call spread. For example, a block of 20,525 December 790 calls traded on the 85-cent bid coincided with a block of 20,525 December 800 calls on the 35-cent asking price. Like Wednesday, it looks like this spread is being sold and seems to be a bet that the index will hold below 790 (which is 5.2 percent above current levels) over the next two weeks and into the December expiration. The spread traded 53000X on the day.
ETF Trading
A massive spread traded in the Financial Select Sector Fund (XLF) Thursday. Shares finished up 38 cents to $15.13 after Goldman Sachs wrote a positive research note saying that banks are benefitting from an improving economy, strengthening equities market, and a favorable interest rate environment. One options strategist seems to be looking for additional upside in the financials during the weeks ahead. In afternoon action, a block of 50,000 XLF January 16 calls traded at 18 cents and a block of 50,000 XLF January 17 calls for a nickel. Excluding commissions, the spread, for a net debit of 13 cents, would breakeven at the expiration if XLF is at $16.13 or higher, $1 above current levels. It offers a possible 87 cent pay-off if shares rally to $17 or more during that time. The Financial Select Sector Fund is an ETF that holds all of the financial names from the S&P 500.
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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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