Unusual Options Activity Review: BAC, VZ, PRU, BHP, ARIA, VIX, TLT
Unusual Options Activity Review For Wednesday, April 20, 2011
Bullish Flow
An interesting three-way spread trades in Bank of America (BAC) Wednesday morning. Shares are off 7 cents to $12.27 and have now suffered a 7-day 9.3 percent drop. Meanwhile, in early options action, one investor sold 18,000 July 11 puts at 21 cents each and bought the July 13 ñ 14 call spread at 25 cents, 40000X. In the call spread, they bought 40,000 July 13s and sold 40,000 July 14s. The spread pays off well if shares rebound beyond $14 through the July expiration. If shares remain week and fall below $11 instead, the strategist will face assignment on the puts and be asked to buy the stock at $11 per share.
Bullish trading was also seen in Verizon (VZ), Prudential (PRU), and Williams Companies (WMB).
Bearish Flow
BHP Billiton (BHP) sees increasing put activity today. Shares closed up $2.70 to $101.12 and the focus is on the June puts. The top trade is a spread, in which the investor apparently bought 2,550 June 90 puts at $1.10 and sold 2,550 June 80 puts at 31 cents. The spread, for a net debit of 79 cents, is a bearish play, as it offers a maximum pay-off if shares fall to $80 or less by the June expiration, which represents a decline of about 20 percent. The breakeven at expiration is $79.21. The spread has now traded 7,500X.
Bearish flow also surfaced in Ariad Pharmaceuticals (ARIA), and L-Identity Solutions (ID).
The CBOE Volatility Index (.VIX) plummeted to its lowest levels since July 2007 today. The market's "fear gauge" hit morning low of 14.30 and was recently down .59 to 15.24. VIX is down 51.2 percent from the multi-month highs of 31.28 set on March 16, but one investor seems to be expecting a rebound. In morning trading, a noteworthy spread went off in VIX. In the trade, the investor bought 10,000 May 22.5 calls and sold 20,000 May 25 calls. They paid 30 cents for the 1X2 and are possibly looking for the VIX to rally to 25 through the May expiration. There's additional upside risk because only half of the VIX May 25 calls, which were sold, are covered by the May 22.5s, which were bought..
ETF Trading
iShares Long-Term Bond Fund (TLT), which is an ETF that holds a basket of longer-dated Treasury securities, is down 36 cents to $92.92 and a noteworthy call spread traded in the TLT today. An investor sold 50,000 June 101 calls at 14 cents and bought the September 98 -101 call spread at 46 cents. In this three-way, the investor paid 32 cents and is probably rolling a position in the June calls to a new position in the September call spread. If so, it's a bullish play that offers a max payout if shares rally to $101 and beyond by the September expiration.
-----------------------------------------------------------------------------------------
Disclaimers
This article is provided for informational purposes only. No statement in this article should be construed as a recommendation to buy or sell a security or to provide investment advice. The content provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy and completeness. optionsXpress makes every effort to provide timely information to its recipients but cannot guarantee specific delivery times due to factors beyond our control.
Derivatives involve substantial risk and are not appropriate for all investors. Please read the "Disclosure Statement for Futures and Options" prior to investing in futures or options.
For investments using a straddle or strangle options strategy the potential loss is unlimited. Multi-leg option strategies are subject to multiple commissions. Profits may be eroded by the commission expended to open and close the positions and other risks apply.
About Joseph Cusick
View Joseph Cusick's post archive >
