Unusual Options Activity Review: SWN, STLD, ILMN, IAG, EK, APKT, JCP, BSX, .DJX, XLF

Posted January 5th, 2012 by Joseph Cusick in Unusual Activity

Unusual Options Activity Review For Wednesday, January 4, 2012

Bullish Trading
Southwest Energy (SWN) shares gained 70 cents to $33.40 after crude oil added another 51 cents to $103.47 per barrel. Crude oil settled at eight-month highs Wednesday. Meanwhile, options volume in Southwest Energy was 3X the daily average after 15,000 calls and 1,790 puts traded on the Houston-based oil and gas company. The top trade of the day in SWN was a 2,400 lot of February 24 calls traded at the $1.36 asking price. At the end of the day, 5,193 contracts had traded against 1,299 in open interest. Some investors were apparently buying SWN Feb 34 calls to open on hopes for a move higher in shares in the weeks ahead. The contract is 1.8 percent out-of-the-money and expiring in 44 days. March 36 calls on Southwest Energy were busy as well, with 3,366 contracts traded on the day.

Bullish trading was also seen in Steel Dynamics (STLD), Illumina (ILMN), and IAM Gold (IAG).

Bearish Trading
Eastman Kodak (EK) shares fell to a new 52-week low Wednesday after the Wall Street Journal reported that, if the company's plans for patent sales fail, the company is preparing to file for Chapter 11 bankruptcy protection. EK lost 18 cents to 47 cents on the day and is now down 85.2 percent since August. Meanwhile, roughly 17,000 puts and 7,000 calls traded on Kodak Wednesday. January .5 puts, which are now 3 cents in-the-money, were the most actives. 7,830 traded. Some investors might be taking positions in the contract on concerns that the company will announce bankruptcy plans in the next few days. January 2012 puts expire in 16 days.

Bearish trading was also seen in Acme Packet (APKT), JC Penney (JCP), and Boston Scientific (BSX).

Index Recap
Dow Jones Industrial Index (.DJX) saw more options volume than usual. Trading under the ticker DJX, the index is designed to equal 1/100th of the Dow Jones Industrial Average. Since the Dow added 21.04 points to 12,418.42 Wednesday, the mini index gained .21 points to 124.18. Options volume on the DJX hit 3X the daily average after 13,000 puts and 360 calls traded on the index. Most of the volume was due to one spread trade after a strategist bought 3500 December 110 puts on the index for $7 and sold 7000 December 95 puts at $3.60. They collected 20 cents on this 1X2 put ratio spread, 3500X, and are possible setting up a hedge for 2012. The spread offers its best payoff if DJX settles at 95 at the December 2012 expiration, which represents a 23.5 percent plunge in the Dow (to 9,500) through the end of the year.

Analyzing the ETF Market
It was a relatively light volume day in the options market Wednesday. 1.5 million calls and 1.9 million puts traded across all of the SPYders, Qs, and other exchange-traded funds, which is only about two-thirds (66 percent) of the average daily volume during the past month, according to Trade Alert data. The top ETF options trade of the day was a 50,000-contract block of June 13 puts on the SPDR Financial Fund (XLF), which was bought for $1.07 per contract to open a new position. XLF finished a quiet day down 4 cents to $13.30 and an investor might have initiated the massive premium purchase to hedge the financial components of a stock portfolio. XLF holds all of the financial-related names from the S&P 500 and in 2011 hit a low of $11.28 per share on October 3.

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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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