Unusual Options Activity Review: EK, CHS, YHOO, LPX, BAC, FSL, BC, GE, SPX, .VIX, XLY

Posted October 3rd, 2011 by Joseph Cusick in Unusual Activity

Unusual Options Activity Review For Monday, October 3, 2011

Bullish Trading

Eastman Kodak (EK) rebounded and recovered some of the big losses suffered last week. Shares tumbled 91 cents to only 78 cents per share Friday after Bloomberg reported that the company is exploring options, including a possible bankruptcy. EK added 54 cents to $1.34 Monday, however, after the company said after the closing bell Friday that it is not considering bankruptcy. Meanwhile, the top options trades on Kodak Monday was a 20,000-contract block of January 2013 $2 puts at $1.39. It might be a closing trade and/or a bet that shares will recover the $2 level through January 2013. January 2012 $3 and $3.5 calls on EK were actively traded today as well.

Bullish trading was also seen in Chico's (CHS), Yahoo (YHOO), and Louisiana Pacific (LPX).

Bearish Trading

Bank of America (BAC) saw a day of heavy trading Monday. Shares lost 9.6 percent to $5.53 and were the biggest percentage losers in the Dow Jones Industrial Average after the bank's web site had technical difficulties for a second day. The problems started Friday, the same day Bank of America said it was imposing a $5 monthly fee for debit card users. The stock fell below its previous $52-week low of $6 in midday trading Monday and the decline gathered additional momentum in afternoon action. At the same time, options on the bank were heavily traded. 443,000 puts and 260,000 calls traded in BofA. October 4 puts, which are now 27.7 percent out-of-the-money and expiring in 18 days, were the most actives. October 5 puts, October 6 puts, and October 7 calls on the stock were heavily traded as well.

Bearish trading was also seen in Freescale Semiconductor (FSL), Brunswick (BC), and GE.

Index Recap

Overall options volume and volatility picked up in the index market. About 1 million puts and 640,000 calls traded across the S&P 500 Index (SPX), CBOE Volatility Index (.VIX) and other cash indexes Monday. The S&P 500 Index kicked off the month of October with a 32.19-point slide. Meanwhile, VIX, which tracks the expected volatility priced into SPX options, jumped 2.49 points to 45.45. The index is now 5.6 percent below the 15-month highs of 48 set on August 8. Some player seem to expect the rally to continue as one of the top options trades in the VIX was an October 50 ñ 55 ñ 60 call butterfly spread. The strategist paid 40 cents for this advanced options strategy and seems to be looking for VIX to settle in the mid-50s at the October expiration, which is 15 days for options on the volatility index.

Analyzing the ETF Market

SPDR Consumer Discretionary ETF (XLY) puts were busy for a second day. A large purchase of December 27 ñ 33 put spreads was highlighted in Friday's market wrap. Shares, which hold names like Home Depot, McDonald's and Comcast, lost $1.02 to $33.84 Monday. Meanwhile, 69,000 puts and 15,000 calls traded on the fund. The top trade is a 22,000-contract block of October 29 puts, which traded at 20 cents on the ISE. An investor bought-to-open a new position in these puts, according to data from the exchange. The Oct 29 put on XLY is 14.3 percent out-of-the-money and today's buyer seems to be bracing for another round of losses for the consumer discretionary in the weeks ahead. October options expire in 18 days.

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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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