Unusual Options Activity Review: PXP, GNW, CELG, FST, AMR, TPX, WTW, HRBN, .SPX, .OEX, .VIX, EWJ,

Posted October 10th, 2011 by Joseph Cusick in Unusual Activity

Unusual Options Activity Review For Monday, October 10, 2011

Bullish Trading

Plains Exploration (PXP), a Houston, TX oil and gas company, saw high options volume Monday. Shares added $1.72 to $25.59 and 37,000 contracts traded on the stock, which is about 6.5X the recent average daily volume, according to Trade Alert data. Much of the activity was due to one spread. In this strategy, the investor sold 10,000 November 22 puts on PXP at 96 cents, bought 10,000 November 26 calls at $2.04, and sold 10,000 November 31 calls at 57 cents. In other words, they sold Nov 22 puts to buy Nov 26 ñ 31 call spreads and paid 51 cents for the three-way package, 10000X. The investor is probably a willing buyer of the stock at $22 (-14%) and is writing naked puts, but also wants exposure to the upside and is buying the call spread. PXP has performed well lately and is up 26.4 percent in the past week. Still, shares are well below the highs near $42 set in July and Monday's spread trader is possibly looking for the stock to recover some more of its losses through mid-November.

Bullish trading was also seen in Genworth (GNW), Celgene (CELG), and Forest Oil (FST).

Bearish Trading

AMR was the subject of impressive spread trades Monday. Shares lost 35.1 percent last Monday after analysts and media reports raised concerns about the airliner's cash flow. However, the stock is up in four of the past five days and has added 31.8 percent since that time. Options volume in AMR was 52,000 puts and 5,940 calls. Most of the put volume was the result of spread trading, in which one or more investors were selling January 2.5 puts on AMR and buying January 1 puts. 25,000 traded and data from the options exchange suggest that the investor was closing out the 2.5s to open in the January 1 puts. That is, a bearish position was being rolled down in strikes. A shareholder might have initiated the trades to adjust a stock hedge.

Bearish trading was also seen in Tempur Pedic (TPX), Weight Watchers (WTW), and Harbin Electric (HRBN).

Index Recap

Trading was slow in the index market on Columbus Day. Treasury markets were closed and no economic data was released Monday in observance of holiday. 456,000 calls and 756,000 puts traded on the S&P 500 Index (.SPX), S&P 100 Index (.OEX), and other cash indexes, which is about 79 percent the average daily volume over the past month, according to Trade Alert data. The S&P 500 Index surged 39.43 points to 1,194.89 and CBOE Volatility Index (.VIX), which tracks the implied volatility of SPX options, fell 3.18 points to 33.02. VIX is on a one-week 27.4 percent losing skid and now well below the levels seen last Monday, when the index closed at 45.45. The decline in the volatility index reflects the sharp decline in risk perceptions seen over the past five days.

Analyzing the ETF Market

iShares Japan Fund (EWJ) saw high volume. Shares added 24 cents to $9.62 and 70,000 contracts traded in the ETF Monday, which is 5.5X the daily average. A large spread surfaced in the Japan fund midday when one strategist sold 30,000 December 10 calls on the fund at 20 cents and bought 30,000 March 10 calls at 40 cents. They paid 20 cents for this Dec ñ Mar 10 call spread and are possibly looking for shares to hold below $10 through the December expiration and then rally from that point forward. Or, it might be a roll ñ i.e. closing out December to open a new bullish position in March. Either way, the trading activity seems to be a bet that Japan's equity market will perform well through March 2012. EWJ is up 3.3 percent in the past week, but still below the highs seen in mid-Feb when shares hit $11.63.

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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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