Unusual Options Activity Review - MSFT, HGSI, ATVI, USU, RAI, LO, NETL, STJ, .SPX, .RUT, .VIX, XLE
Unusual Options Activity Review For Monday, June 27, 2011
Microsoft (MSFT) shares gained 3.8 percent to $25.26 and helped power rallies in both the Dow and the NASDAQ Monday after a court struck down a law that banned violent video game sales to minors. Microsoft had been opposed to the regulation. Shares jumped on news of the verdict and options in MSFT were very actively traded as well. 207,000 calls and 104,000 puts traded in the software giant. July 26 calls, which are now 3.2 percent and expiring in 18 days, were the most actives. 38,266 traded. The last trade was at 16 cents per contract. July 25, Weekly (7/1) $25, and August 26 calls saw brisk trading as well.
Bullish trading was also seen in Human Genome Sciences (HGSI), Activision Blizzard (ATVI) and USEC (USU).
Puts on Reynold's American (RAI) were heavily traded Monday after a court ruled against the major tobacco companies in an appeal in Louisiana. RAI hit a low of$36.58 in morning trading, but then battled back and finished the day up 16 cents to $37.22. Although shares rebounded, the options order flow in RAI remained defensive. At the end of the day, 5,470 puts and 165 calls traded on the ticker. August 35 puts, which are 6 percent out-of-the-money and expiring in 53 days, were the most actives. 3,233 changed hands. 100 percent of the volume traded at the ask and open interest is only 163 contracts. So, the activity looks like opening put buyers. November 33 puts saw similar action as well. 1,619 traded.
Bearish flow also surfaced in Lorillard (LO), Netlogic (NETL), and St. Jude Medical (STJ).
It was another quiet day in the index options market Monday, as volume could potentially be light all week ahead of the Fourth of July three-day weekend. 666,000 calls and 515,000 puts traded on the S&P 500 Index (.SPX), Russell 2000 Small Cap Index (.RUT) and other cash-settled indices, which is only about 90 percent the recent average daily levels, according to Trade Alert data. CBOE Volatility Index (.VIX), which tracks the implied volatility of S&P 500 Index options, gave up .54 to 20.54 and held above the 20 "psyche" level. Meanwhile, many of the most active index options were upside calls on the VIX. July 27.5 calls saw the most volume. 80,944 traded. July 21, July 22.5, July 30 and August 27.5 calls were heavily traded as well. While the S&P 500 gained 11.65 to 1,280.10, heavy trading in VIX out-of-the-money calls suggests that some investors are still concerned about the potential for increasing volatility this summer, as we head into the final few trading days in June.
Select Sector Energy Fund (XLE) added 38 cents to $71.31 and a block of 41,000 July 70 puts was sold at $1.03 on this ETF. XLE is the exchange-traded fund that holds all of the energy-related names from the S&P 500. The massive premium sale probably closes an existing position. A similar block traded on June 15. At that time, the investor bought 43,000 at $1.51 per contract. Shares have traded down from $71.93 since that time, or .9 percent. However, the position is being closed out at a loss equal to 48 cents per contract. Not only has time decay affected these puts, but slippage (the difference between the bid and ask) is a factor as well. Still, the investor is probably closing out the trade rather than run the risk of further losses. The July 71 put is now 31 cents out-of-the-money and since next Monday is a holiday, there are only 13 trading days left until the contract expires.
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