Unusual Options Activity Review: PFE, BIIB, LLY, MGM, SYY, RENN, HDY, SBUX, BPOP, IFF, .SPX, .VIX, QQQ

Posted January 30th, 2012 by Joseph Cusick in Unusual Activity

Monday's Bullish Trading
Some of the large cap healthcare names will be in focus Tuesday morning, with Pfizer (PFE), Biogen (BIIB), and Eli Lilly (LLY) scheduled to release earnings results. Eli Lilly saw heavy options action ahead of its report. Shares of the pharmaceutical maker added 5 cents to $39.25 and options volume on the ticker was 42,000 calls and 15,000 puts. February 42 calls, which are 7 percent out-of-the-money and expiring 17 days after the company reports earnings, were the most actives. 6,365 traded. February 39 and 40 calls were the next most actives. LLY has had a mixed track record after reporting earnings lately, having moved higher after two of the past four earnings releases. Monday's high call volume in the stock might be a view that the stock will perform well this time after results are posted Tuesday morning.

Bullish trading was also seen in MGM, Sysco (SYY), and RenRen (RENN).

Monday's Bearish Trading
Hyperdynamics (HDY) shareholders have had a volatile ride. Shares of the Houston, TX oil and gas driller had enjoyed a one-month 55.3 percent surge prior Monday. However, the company announced that it will raise funds through a hefty stock offering and, after being halted midday, shares dropped in afternoon trading to finish the day down 22.9 percent to $2.60 on turnover of 9.7 million shares. Typical volume in HDY is 2.8 million shares. Meanwhile, options volume surged to 7X the daily average. 43,000 calls and 6,440 puts traded on the stock. March 3 calls were the most actives. Some investors might have been scrambling to close out positions as the contract was falling 15.4 percent out-of-the-money. However, others might have been initiating bullish trades in March 3 calls on the stock on the view today's sell-off was overdone.

Bearish trading was also seen in Starbuck's (SBUX), Popular (BPOP), and International Flavors and Fragrances (IFF).

Index Recap
It was a relatively slow day of trading Monday. In the index market, for instance, 322,000 calls and 381,000 puts traded on the S&P 500 Index (.SPX), the CBOE Volatility Index (.VIX) and other cash products, which is less than 70 percent the daily average, according to data from Trade Alert. The S&P 500 edged down 3.31 points to 1,313.02. Meanwhile, VIX, which tracks the expected volatility priced into SPX options, hit a morning high of 20.33, and finished the day up .87 to 19.40. SPX March 1300 puts were the most active index contracts on the day. 24,430 traded. Some portfolio managers might have been buying these out-of-the-money March puts on the S&P 500 to help hedge stock portfolios in the weeks ahead.

Analyzing the ETF Market
An interesting spread trades in the PowerShares QQQ Fund (QQQ) Monday. Shares didn't do much and finished the day up a nickel to $60.45. In options action, one investor sold 50,000 March 54 puts on the fund at 28 cents and bought 50,000 March 49 puts for 9 cents. In other words, a March 54 ñ 49 put spread was sold the QQQ at 19 cents, 50000X. Meanwhile, the same investor bought 25,000 June 57 puts on the fund for $1.94 per contract. The activity appears to be a roll of puts from a March spread to straight June 57 puts. Qs, which is the popular exchange-traded fund that holds the NASDAQ 100 stocks, has performed well lately and is up 11.3 percent since 11/19. Monday's spread trader is possibly exiting the March 49 ñ 54 put spread because it is falling deeper out-of-the-money. At the same time, they are buying June 57 puts and extending a bearish view, or hedge, an additional three months.

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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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