Unusual Options Activity Review: CYH, MRVL, JNPR, TIN, HOV, DHI, BCS, SVNT, .VIX, XRT

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Unusual options activity review for Tuesday, July 26, 2011



Bullish Trading

Community Healthcare (CYH) call options were bought Tuesday. Shares lost 4.8 percent Monday and moved lower along with other hospital operators after HCA posted disappointing earnings. HCA's weak results were the result of lower admissions and a shift to less-acute cases. CYH edged up 18 cents to $25.89 Tuesday, however, and options volume was 4.5X the average daily. 6,675 calls and 600 puts traded on the hospital operator. The top trade of the day was a 1,000-contract block of August 29 calls at 25 cents on the ISE. The next biggest was 950 August 28 calls at 45 cents, also on the ISE. Data from the ISE indicate that both trades were opening call buyers. August 27 and 30 calls saw interest as well. Some investors might be taking bullish short-term positions in CYH after Monday's weakness and on hopes for a post-earnings rally when the company reports on July 28. August options expire in three and a half weeks.

Bullish trading was also seen in Marvell Technology (MRVL), Juniper Networks (JNPR), and Temple Inland (TIN).



Bearish Trading

Homebuilder Hovnanian (HOV) shares lost 9 cents to $2.07 after data released Tuesday morning showed New Home Sales falling to an annual rate of just 312,000 in June. Economists were expecting an increase to 320,000 from 315,000. Meanwhile, options volume in HOV hit 10X the average daily after 7,760 puts and 1,150 calls traded in the name. The top trade of the day was a 563-lot of Sep 1.5 puts at a dime when the market was 0 to 10 cents. Looks like a buyer opened a new position. 2,872 traded on the day against zero contracts of open interest. The Sep 1.50 put on HOV is 27.5 percent out-of-the-money and expires in 52 days. Some shareholders might have been buying the contract to hedge the risk of further losses in HOV ahead of earnings, which are expected late-August.

Bearish flow also surfaced in DR Horton (DHI), Barclay's Bank PLC (BCS), and Savient Pharmaceuticals (SVNT).



Index Trading

CBOE Volatility Index (.VIX) made a run higher late and closed above the 20 "psyche" level Tuesday. VIX gained .88 to 20.23 and is up 15.5 percent so far this week. Anxiety levels started rising after the weekend when politicians continued to bicker over competing plans and failed to reach any sort of an agreement to solve the nation's budget problems ahead of the August 2 deadline to raise the debt ceiling. Meanwhile, options volume in the "fear gauge" was lopsided Tuesday, with 300,000 calls and 97,000 puts traded in the VIX ñ a ratio of more than three-to-one. August 27.5 and August 30 calls were the most actives. Some investors might be taking positions in VIX upside calls on concerns about a spike in market volatility between now and the August expiration, which is in three weeks for VIX options (because the expiration is on a Wednesday).



ETF Trading

SPDR Retail Trust (XRT) moved 66 cents higher to $55 on encouraging earnings news from Supervalu (SVU), Office Depot (ODP), and RadioShack (RSH). In XRT options action, 67,000 puts and 760 calls traded on the ETF. A large percentage of the volume was due to one spread trade, in which the investor sold about 40,000 December 44 puts at 64 and 65 cents and bought 15,000 December 50 puts at $1.75 and $1.76. Open interest in the Dec 44 puts is more than 40,200 and the second largest position in XRT options. The contract is now $11 out-of-the-money. So, it's possible that the spread trade was a roll ñ or closing out the Dec 44 puts to open a smaller position in the Dec 50 puts. An institutional investor might have initiated the trades to hedge a portfolio or retail stocks.



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