Unusual Options Activity Review: TRGT, APKT, IVN, ALU, JEF, DEPO, SYY, IPG, .SPX, .OEX, .VIX, SPY

Posted November 2nd, 2011 by Joseph Cusick in Unusual Activity

Unusual Options Activity Review For Tuesday, November 1, 2011

Bullish Trading

Targacept (TRGT) saw increasing volume ahead of earnings. Shares added 66 cents to $18.26 and the top trades include a December 10 ñ 22.5 bullish risk-reversal on the stock at $2.60, 3000X. The investor bought 3,000 Dec 22.5 calls on TRGT for $4 and sold 3,000 Dec 10 puts at $1.40, which creates a bullish trade that will pay off if held through the expiration and shares of the biotech rally beyond $24.10. (But, as with any options trade, the position can be closed at any time prior to the expiration through an offsetting trade.) Separately, a three-way spread was initiated in TRGT after one strategist apparently sold 3,000 TRGT puts on the stock at $1.45 and bought 3,000 December 20 ñ 30 call spreads for a $2.95 net debit. They apparently paid $1.50 for the package, which will pay off well if shares rally beyond $21.5 through mid-December. TRGT is due to report Tuesday afternoon, but the results are not out as of this writing.

Bullish trading was also seen in Acme Packet (APKT), Ivanhoe Mines (IVN), and Alcatel Lucent (ALU).

Bearish Trading

Jefferies (JEF), the New York-based securities and investment banking firm, lost $1.25 to $12.01 and has suffered a two-day 18.4 percent slide amid volatility in the equity market and on the heels of MF Global's bankruptcy announced Monday. Jefferies said Monday that it has less than $9 million in marked-to-market exposure to MF Global. The company said Tuesday that it has no meaningful exposure to sovereign debt of the nations of Portugal, Italy, Ireland, Greece, and Spain. Still, investor anxiety levels in JEF seem elevated. As shares sank for a second day, 16,000 puts and 5,100 calls traded in JEF Tuesday. While January $14 calls were the most actives and traded 4,148 contracts, the rest of the flow seemed decidedly bearish. January and April $8 puts, which are $4 out-of-the-money, were heavily traded. November 12, December 11 and December 7 puts saw action as well. Meanwhile, implied volatility in the options on the stock surged 43 percent and is now elevated at 92 percent.

Bearish trading was also seen in Depomed (DEPO), Sysco (SYY), and Interpublic Group of Companies (IPG).

Index Recap

Overall trading volume and volatility jumped in the index market Tuesday. Approximately 700,000 calls and 1.2 million puts traded across the S&P 500 Index (.SPX), S&P 100 Index (.OEX), and other cash indexes, which is 1.3X the recent average daily volume, according to Trade Alert data. The S&P 500 Index tumbled 35.02 points to 1,218.28 and CBOE Volatility Index (.VIX), which tracks the implied volatility priced into S&P 500 Index options, gained 4.81 points to 34.77. VIX, which closed at a multi-month low of 24.53 Friday, is up 41.7 percent so far this week! Trading in the options on the volatility index was brisk Tuesday as well. 300,000 calls and 285,000 puts changed hands in the VIX pit. The top trade was a 12,500-block of December 45 calls at the $2 asking price, which might be a hefty call purchase on concerns levels of volatility will remain high through mid-December.

Analyzing the ETF Market

Put volume picked up in the SPDR 500 Trust (SPY) Friday. The so-called "SPYders" lost $3.50 to $122 on the day. Meanwhile, 3.4 million puts and 1.8 million calls traded on the exchange-traded fund. Tuesday's nine most actively traded contracts across the entire options market were puts on the SPY. November 120s, which are now $2 out-of-the-money and expiring in 17 days, saw the most volume. 123,530 contracts changed hands. November 115, 116 and 119 puts on the ETF were heavily traded as well. Since SPY is a fund that holds the same name as the S&P 500 Index, the heavy trading in the downside puts in the product reflects the anxiety that investors face. That is, some investors are likely buying SPY puts to hedge stock portfolios on concerns about the short-term outlook for the US equity market. November options on equities and ETFs expire in 17 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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