Unusual Options Activity Review: NUAN, MBI, MDR, LVS, USB, STJ, VECO, TECD, .SPX, XOP
Unusual Options Activity Review For Thursday, October 6, 2011
Bullish Trading
Calls on Nuance Communications (NUAN) were heavily traded Thursday. Shares of the Burlington, MA software developer rallied $1.77 to $21.89 and are now up 12.7 percent since Apple unveiled its new iPhone 4S product Tuesday. The new device will include dictation to support multiple languages. Nuance develops the voice-to-text technology. NUAN was up Tuesday on the product announcement and, after a dip lower Wednesday, was up again Thursday. Options volume on the stock was 6X the daily average. 12,000 calls and 825 puts traded on NUAN. October 22 calls, which are now just 11 cents out-of-the-money and expiring in two weeks, were the most actives. 5,232 traded. Another 3,893 October 21 calls changed hands. Heavy interest in short-term October calls on Nuance seems to reflect some expectations that the rally can continue in the days ahead. Shares have already really more than 30 percent since earnings were reported on 8/9.
Bullish trading was also seen in MBIA (MBI), McDermott (MDR), and Las Vegas Sands (LVS).
Bearish Trading
US Bancorp (USB) saw high put volume Thursday. Shares added 55 cents to $24 and are on a three-day 6 percent run higher. USB is now 19.4 percent above the 52-week low of $20.1 set intraday on August 23. Meanwhile, options action in the bank was noteworthy, as 30,000 puts and 6,600 calls traded on the stock. Dec 20, Dec 23, and Oct 23 puts saw interest. The top trades were part of a ratio spread, in which the investor bought 2,500 January 24 puts on USB at $2.37 and sold 5,000 January 20 puts were sold at $1.10. 17 cents was paid for this Jan 24 ñ 20 (1X2) put ratio spread and Thursday's strategist might have initiated the trade on concerns USB will revisit its 52-week lows through January 2012. The debit is lost if shares hold above $24 and the position is held through the expiration. There is additional downside risk to put ratio spreads, because only half of the lower strike puts (which are sold) are covered by the higher strike puts (which were bought).
Bearish trading was also seen in St. Jude Medical (STJ), Veeco Instruments (VECO), and Tech Data (TECD).
Index Recap
A noteworthy spread traded on the S&P 500 index (.SPX) late Thursday. The index added 20.94 to 1,164.97 and is now up 8.4 percent from the 52-week low of 1,074.77 set intraday Tuesday. In late-day options action, one strategist was active in SPX October puts and bought the 1140 strike at $22.30 and sold the 1130 strike at $19.00. This Oct 1140 ñ 1130 put spread, for a $3.30 net debit, traded 33,000X. It's a hefty premium purchase and seems to be a bearish market bet. The spread buyer will reap their best profits if the index falls to 1130 through the October expiration, which represents a 3 percent market decline over the next 14 days. An institutional investor might have initiated the put spread to help hedge a stock portfolio.
Analyzing the ETF Market
SPDR Oil Exploration and Production Fund (XOP) added 93 cents to $44.90 after crude oil gained $2.82 to $82.50 per barrel. XOP, which holds shares of energy-related companies like Exxon, Chevron, and ConocoPhillips, is on a three-day 12.3 percent run higher. Options on the ETF were actively traded Thursday. The flow included 36,000 puts and 12,000 calls. The top trades were part of a volatility play, in which the strategist bought 10,000 December 47 calls on XOP at $3.65 and bought 10,000 December 30 puts at 71 cents. That is, a Dec 30 ñ 47 strangle was bought at $4.36, 10000X. It might be a closing trade, as open interest is sufficient to cover in both contracts. If opening, it's a bet that shares of energy-related companies will see high volatility through mid-December. This strangle has a bullish bias, as the Dec 30 puts are relatively deep out-of-the-money compared to the Dec 47 calls.
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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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