Unusual Options Activity Review - TEVA, TSLA, TIN, ALL, BA, AEO, AIG, DRI, .VIX, .SPX, .OEX.SPY
Unusual Options Activity Review For Wednesday, May 25, 2011
Bullish Flow
Teva Pharmaceuticals (TEVA), which saw a two-day 5.8 percent rally with help from positive earnings news two weeks ago, lost 4 cents to $49.36 Wednesday. Overall options volume was 22,000 contracts and not unusual for TEVA. Average daily is 36,000. However, call volume outpaced put volume more than three-to-one and was driven by a noteworthy ratio spread. In this trade, the strategist bought 2,800 January 52.5 calls at $2.22 per contract and sold 5,600 January 62.5 calls at 40 cents. They paid $1.42 for this 1X2 ratio spread and appear to be looking for a run higher in shares of the pharmaceutical manufacturer through early 2012. The max profits happen if share settle at $62.5 in mid-January, which represents a move higher of 26.6 percent. There's additional risk to the upside, however, as only half of the Jan 62.5 calls, which were sold, are covered by the Jan 52.5 call options.
Bullish trading was also seen in Tesla Motors (TSLA), Temple Inland (TIN), and Allstate (ALL).
Bearish Flow
Boeing (BA) added 75 cents to $76.23 and was one of the best gainers in the Dow Jones Industrial Average Wednesday. Options on Boeing were actively traded as well. 17,000 calls and 18,000 puts traded in the name. Some of the action was due to a combination trade. In this position, the strategist bought 7,500 August 65 puts at 88 cents and sold 7,500 August 85 calls at 56 cents. A source on the exchange floor confirms that this bearish risk-reversal was bought at 32 cents. It's not a straight bearish play, however, as the same investor also bought a block of 225,000 Boeing shares at $75.45. Still, this big options trade seems to reflect expectations for heightened volatility in BA from now through mid-August.
Bearish flow also surfaced in American Eagle (AEO), AIG, and Darden Restaurants (DRI).
Index Trading
The CBOE Volatility Index (.VIX) slipped Wednesday, as options action is clearly slowing heading into the three-day Memorial Day weekend. 411,000 calls and 381,000 puts traded across the S&P 500 Index (.SPX), S&P 100 (.OEX) and other cash indexes, which is only 71 percent the recent average daily volume, according to Trade Alert data. Market action was slow in the index pits and, consequently, the CBOE Volatility Index (.VIX), which tracks the expected volatility priced into S&P 500 options, gave up .75 points to 17.07. The market's "fear gauge" is now nearly three points, or 15 percent, from the levels seen at the start of the week. The volatility index made a run beyond 20 at the open this week after a Standard & Poor's downgrade of Italy sent the euro and European markets reeling Monday.
ETF Trading
A substantial butterfly spread traded in the SPDR 500 Trust (SPY) Wednesday. The so-called "SPYders" is an exchange traded fund that holds all of the components of the S&P 500 Index. Shares gained 44 cents to $132.39. In options action, it appears that an investor sold 100,000 July 119 puts at 57 cents. The same strategist also bought 50,000 July 112 puts at 25 cents and bought 50,000 July 126 puts at $1.44. In other words, a July 112 ñ 119 ñ 126 put butterfly spread was initiated at 55 cents, 50000X. An institutional investor probably bought the spread as a hedge. The position offers a max payoff if the Spiders fall to $119 through the July expiration, which represents a market decline of more than 10 percent.
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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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