Unusual Options Activity Review: NG, FTNT, PXP, MOS, DTG, EK, TIF, CA, .BKX, EWG

Posted September 26th, 2011 by Joseph Cusick in Unusual Activity

Unusual Options Activity Review For Monday, September 26, 2011

Bullish Trading

An interesting combination play trades in Novagold Resources (NG) Monday. Share of the Vancouver-based gold miner finished the day up 46 cents to $7.38 despite another day of losses on the yellow metal. Gold is down $17 to $1620 an ounce. Meanwhile, in Novagold options action, the top trades were part of a bullish ratio risk-reversal in which the strategist apparently bought 10,000 Jan 7.5 calls on the stock at 88 cents and sold 8,800 December 7 puts at $1.05. The strategy appears to be a new position. If so, it seems to be a bet that shares will hold above $7 through the December expiration and rally beyond $7.5 through January 2012. If shares fall below $7 and the position is held through the December expiration, the strategist will be asked to buy (have put) the stock at $7. The bullish combo traded multiple times. More than 50,000 Jan 7.5 calls on Novagold traded. Another 44,000 Dec 7 puts changed hands.

Bearish trading was also seen in Fortinet (FTNT), Plains Exploration (PXP), and Mosaic (MOS).

Bearish Trading

Dollar Thrifty (DTG) loses 11 cents to $59.47 Monday and options volume on the car rental company was 12X the daily average after 17,000 puts and 275 calls traded on stock. The top trades of the day were part of a spread, in which the strategist apparently sold 7,000 October 55 puts on DTG at $2.70 and bought 7,000 November 55 puts at $4.60. In other words, an October ñ November 55 put spread was bought on Dollar Thrifty for a $1.90 net debit. The strategist might be looking for the stock to hold above $55 through the October expiration (25 days) and then dip below that price through November expiration (53 days).

Bearish trading was also seen in Eastman Kodak (EK), Tiffany (TIF), and Computer Associates (CA).

Index Recap

PHLX Bank Sector Index (.BKX) saw more volume than usual. The index, which tracks the price action of two dozen leading banking names, added 1.85 to 36.85 and is now up 9 percent from a 52-week low set intraday Thursday. Options volume on the bank index hit 22X the daily average after one investor sold 9,000 November 41 calls on BKX at 62.5 cents per contract. The action appears opening because there is no existing open interest in the BKX Nov 41 calls. If so, the trade seems to be a bet that the index will hold below 41 (11.3 percent) through the November expiration. If not, the strategist will be on the hook to pay, in cash, the difference between the settlement value of the index at expiration and the 41 strike price (X100).

Analyzing the ETF Market

iShares Germany Fund (EWG) shares jumped 64 cents to $18.39 and options volume in the ETF hit 3X the daily average, driven by increasing interest in October 21 call options. Volume approached 10,000 contracts against 1,682 in open interest. The top trade was a 4,400-contract block at 35 cents per contract when the market was 15 to 35 cents. The call buying comes one trading day after shares hit a 52-week low of $17.15 Friday. EWG, which holds shares of Germany's leading publicly-traded companies, has rebounded 7.2 percent since that time. October 21 calls on the Germany Fund are now 22.5 percent out-of-the-money with 25 days of life remaining. If shares fail to rally 21.5 percent and beyond $21 through the expiration, the calls expire worthless.

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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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