Unusual Options Activity Review: INTC, S, BSX, SFSF, WFC, BIIB, MF, IO, .VIX, .SPX, XLK

Posted October 17th, 2011 by Joseph Cusick in Unusual Activity

Unusual Options Activity Review For Monday, October 17, 2011

Bullish Trading

Put sellers surfaced in Intel (INTC) ahead of earnings. Shares lost 22 cents to $23.28 and one strategist sold a 10,000-contract block of October 23 puts on the chipmaker at 33 cents per contract. Separately, a 12,500-contract block of November 21 puts traded at 31 cents when the market was 31 to 32 cents. 17,000 contracts traded and data indicate opening activity in these out-of-the-money puts. The put selling in Intel is interesting because it comes ahead of the company's profit report ñ which is due Tuesday afternoon. Total volume on the stock was 87,000 calls and 90,000 puts and implied volatility jumped 10.5 percent to 36.5. Players have been active in the name in the past week heading up to the report and Monday's put writes seem to reflect expectations that shares will hold recent gains after the earnings report is released. Intel edged a bit lower Monday, but is up 21.3 percent in less than two months.

Bullish trading was also seen in Sprint (S), Boston Scientific (BSX), and Success Factors (SFSF).

Bearish Trading

Wells Fargo (WFC) shares lost $2.25 to $24.42 and options on the bank saw brisk trading Monoday after the company reported a quarterly profit of 72 cents per share on $19.63 billion in revenues. The Street was expecting 73 cents on $20.34 billion. Shares sank on the news and options volume in Wells Fargo was 88,000 calls and 80,000 puts. The top trade was a January 20 ñ 30 risk-reversal at 38 cents, 10000X. That is, the investor sold 10,000 January 30 calls on the stock at 38 cents and bought 10,000 January 20 puts at 76 cents. This bearish combination might have been initiated by a shareholder to hedge or "collar" a position in Wells Fargo shares. Or, it might be a straight bet that the bank will continue its bearish trend through January 2012.

Bearish trading was also seen in Biogen Idec (BIIB), MF Global (MF), and ION Geophysical (IO).

Index Recap

CBOE Volatility Index (.VIX) saw a big move and gained 5.15 points to 33.39 Monday. VIX, which tracks the expected volatility priced into S&P 500 Index (.SPX) options, moved higher after the SPX lost 23.72 points to 1,200.96. The S&P is now testing a previous support area around 1,200. Meanwhile, VIX options were actively traded heading into the expiration. While most October options contracts expire at the end of the week, VIX is unique because the expiration is on a Wednesday. Therefore, Tuesday is the last day to trade the VIX October contract. Volume in the VIX pit Monday was 220,000 calls and 104,000 puts. While October 35 calls and 30 puts were heavily traded heading into the expiration, December 40 calls were the most actives. 31,100 traded and some investors might have been taking positions in these upside calls on expectations for another spike in the VIX before yearend.

Analyzing the ETF Market

SPDR Technology Fund (XLK) loses 41 cents to $25.59 and 25,000 contracts traded on the ETF Monday, which is rather light volume for the product. However, the flow was very lopsided, as 21,000 calls and 4,235 puts traded on the ETF. The top trade of the day was a January 2013 20 ñ 30 call spread that traded at $5.85, 3000X on ISE. Data indicate that a new position was opened and the spread trader is probably taking a longer-term position in the spread on the view XLK will settle above $30 (~17.2%) through the January 2013 expiration. If so, the spread will widen to $10 and the profit (excluding transaction costs) is $10 minus the debit paid, or $4.15.

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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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