Unusual Options Activity Review: MPEL, IR, CHK, MDVN, NVS, .VIX,

Posted January 22nd, 2012 by Joseph Cusick in Unusual Activity

Unusual Options Activity Review For Friday, January 20, 2012

Bullish Trading
Melco Entertainment (MPEL), a Hong Kong-based casino operator, saw interesting options order flow Friday. Shares didn't do much and finished the day up a penny to $11.19 on turnover of 5.5 million shares. Average volume for the stock is about 4.3 million. Meanwhile, options volume was 7.5X the daily average, with about 27,000 calls and fewer than 1,000 puts traded in MPEL. The top trade was a buyer of 12,600 April $14 calls for 35 cents per contract. At the end of the day, 13,860 April 14 calls traded on the stock against 749 contracts in open interest. April $12 and April $13 calls were busy as well. There was no company news to explain the heightened call activity in Melco. Shares have performed well over the past few weeks and are up more than 25 percent from a month ago. Friday's call buyers seem to be anticipating additional gains for MPEL through mid-April. The company's earnings report will come into focus in about a month.

Bullish trading was also seen in NetApp (NTAP), Talbot's (TLB), and Manulife Financial (MFC).

Bearish Trading
Ingersoll Rand (IR) finished the day down 29 cents to $34.00 on volume of 2.7 million shares, which is lighter than the recent average of 3.2 million. However, options volume was 4X the daily average after 11,000 puts and 1,145 calls traded on the Irish diversified machinery company. The action was heavily concentrated in February 32 puts on the stock. 10,200 traded, mostly in smaller sizes. Top trades included 2,800 for 90 cents when the market was 80 to 90 cents. Open interest is only 92. So the activity looks like opening buying. Feb 32 puts on IR are $2, or 5.9 percent out-of-the-money. Some shareholders might have been buying the contract to hedge stock ahead of a Feb 8 earnings release. The stock stumbled 7.9 percent on 10/20 after earnings were last released.

Bearish trading was also seen in Chesapeake (CHK), Medivation (MDVN), and Novartis (NVS).

Index Recap
CBOE Volatility Index (.VIX) continues its losing ways. It fell below the 20 level Thursday for the first time since July. It was trading modestly lower through midday and then fell again sharply in the final two hours of Friday's session. VIX finished down 1.59 to 18.28 and is now down 21.5 percent year-to-date. The slide seems to be stirring up a lot of interest in options on the index. 249,000 calls and 216,000 puts traded in the VIX pit today. Morning trades included a buyer of more than 60,000 VIX February 19 puts for 40 cents per contract. The timing was good. At the end of the day, 72,377 contracts had changed hands and market for the contract had increased to 50 to 55 cents.

Analyzing the ETF Market
iShares Silver Fund (SLV) saw active trading amid gains in the metals Friday. The white metal was up $1.56 to $32.07. Meanwhile, SLV, which is an exchange-traded fund that holds the metal stored in bank vaults, jumped $1.48 to $31.22 per share and options volume jumped to 2.5X the average daily. 310,000 contracts traded. January 29 and 30 calls were expiring in-the-money and were the most actives. February 30 and 31 calls were the next most actives. SLV has performed well so far in 2012 and is up 15.9 percent year-to-date. Some investors might have been rolling positions in January options ahead of the expiration and buying February calls to extend bullish bets another month.

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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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