Unusual Options Activity Review - KR, JCP, GMCR, CCK, CYH, SWY, XLNX, USU, .SPX, .OEX, .VIX
Unusual Options Activity Review For Tuesday, June 14, 2011
Bullish Flow
Kroger (KR) is a name worth watching in the days ahead. The grocery chain releases its earnings Thursday morning and analysts expect the company to post a 63-cent per share quarterly profit, up from 58 cents a year ago. Options action is picking up ahead of the results. 4,445 calls and 935 puts traded in Kroger options Tuesday. Shares lost 19 cents to $23.22 and June 24 calls were the most actives. 3,272 contracts traded and, with 77 percent hitting at the ask and open interest of 1,172, it appears that buyers were driving the volume. If so, it's a bold move, as the contract will expire the day after KR reports earnings. If shares hold below $24 during that time, the contract expires worthless.
Bullish trading was also seen in JC Penney (JCP), (GMGreen Mountain Coffee Roasters (GMCR), and Crown Castle (CCK).
Bearish Flow
Community Healthcare (CYH), a Franklin, TN operator of hospitals, saw 6.5X the average daily options volume after 17,000 puts and 15,000 calls traded in the name Tuesday. Most of the action was due to four-way spread trading, in which the strategist was selling June 25 puts and buying June 29 calls. They also bought July 22 puts and sold July 25 calls. It looks like they rolled a bearish position from June to July and down in strike prices. In other words, they exited a June 25 ñ 29 bearish risk-reversal to open a new July 22 ñ 25 combo. They did this 7500X and are possibly hedging shares with the risk-reversal. If so, the four-way play is an adjustment to a collar strategy and comes as shares try to rebound from a 36.1 percent slide suffered since April 8. The stock added 43 cents to $26.19 on the session.
Bearish flow also surfaced in Safeway (SWY), Xilinx (XLNX), and USEC (USU).
Index Trading
Trading is picking up in the index market heading into the expiration. It's a quarterly expiration. So, not only are stock, index and ETF options expiring this week, but so are futures, single stock futures, and futures options. It's likely to be very busy Thursday and Friday. Volume picked up noticeably Tuesday, with 820,000 calls and 983,000 puts traded across the S&P 500 Index (.SPX), S&P 100 (.OEX) and other cash indexes, which is about 1.5X the recent average daily volume, according to Trade Alert data. The S&P 500 gained 16.04 points to 1,287.87 and the CBOE Volatility Index (.VIX), which tracks the expected volatility priced into SPX options, came off Monday's two-month closing high and finished down 1.35 to 18.26.
ETF Trading
The Financials Select Sector ETF (XLF), which holds all of thefinancial-related names from the S&P 500, saw a second day ofinteresting options action. We highlighted an XLF Sep 15 ñ 16 put ratiospread in Monday's closing report. Tuesday's shares added 7 cents to$15.05 and a noteworthy trade was a 25,000-contract block of Jan16 calls at 59 cents on the ISE. Two more blocks of 10,000 each alsotraded at 59 cents. These 45,000 contracts were opening customer buyers,according to data from the ISE. If so, the investor in question paid$2.655 million plus transaction costs to lock in the right to buy 4.5million shares of the fund at $16 each. It's a bullish play with abreakeven at $16.59 at the January expiration, which represents a 10.2percent rally from current levels.
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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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