Unusual Options Activity Review: SHLD, DDS, TGT, F, KR, CSCO, FTR, EIX, QCOR, RKT, .SPX, .VIX, FXI

Posted February 24th, 2012 by Joseph Cusick in Unusual Activity

Unusual Options Activity Review For Thursday, February 23, 2012

Thursday's Bullish Trading
A handful of big retailers were up on earnings Thursday. Sears Holdings (SHLD) gained $9.72 to $61.80 per share and Dillards (DDS) added $5.63 to $57.63. Meanwhile, Target (TGT) gained $1.53 to $54.50 after its earnings topped Street estimates and options volume on the retailer was 4X the daily average. About 48,000 calls and 10,000 puts traded on the retailer. The top trade of the day was a diagonal spread, in which the strategist sold 5,000 March 55 calls on the stock at 63 cents and bought 5,000 April 57.4 calls for 40 cents. The Mar 55 ñ April 57.5 call spread, for a 23-cent net credit, is possibly rolling activity or maybe a view that the stock will hold below $55 (+.9%) through the March expiration (three weeks) and then rally beyond $57.5 (+5.5%) through the April expiration (56 days).

Bullish trading was also seen in Ford Motor (F), Kroger (KR), and Cisco Systems (CSCO).

Thursday's Bearish Trading
One of the largest options trades in Thursdayís trading session was in Frontier Communications (FTR). Shares, which staged a three-day 18 percent rally late last week, lost 2 cents to $4.57 today and are down 4.4 percent since Friday. In afternoon options trading, 55,000 May 4 puts were sold on the stock at 15 cents and 55,000 May 5 calls sold at an average of 12.5 cents. The hefty options blocks traded on PHLX, where a source on the exchange confirms that this May 4 ñ 5 strangle was sold for an average of 27.5 cents. If so, itís not necessarily a bullish or bearish play on the Stamford, CT telecomm. Instead, it seems to reflect expectations that the stock will hold in a range around these levels, or between the $4 and $5 strike prices, through the May expiration.

Bearish trading was also seen in Edison International (EIX), Questcor Pharmaceuticals (QCOR), and Rock Tenn (RKT).

Index Recap
Trading remains active in the index pits, even as stock market averages have traded in narrow ranges in recent weeks. After losing 4.55 points Wednesday, the S&P 500 Index (SPX) added 5.80 points to 1,363.46. Total options volume in the S&P 500, CBOE Volatility Index (VIX) and other index products was 597,000 calls and 736,000 puts. VIX, which tracks the expected volatility priced into S&P 500 index options, lost 1.39 to 16.80. Meanwhile, the most actively traded index contract Thursday was the VIX March 30 call. 82,000 contracts traded. Some investors might have been buying theses upside calls on the volatility index on concerns the recent period of low market volatility will be short-lived. March options on VIX expire in 26 days.

Analyzing the ETF Market
A very large options trade surfaced in the iShares FTSE China 25 Index Fund (FXI) Thursday. Shares lost 18 cents to $40.15 on the day and a 50000-contract block of January 25 puts traded on the ETF for 91 cents per contract. The block traded electronically on the International Securities Exchange and data from the ISE indicate an investor sold the block to open a new position. If so, the strategist is probably a willing buyer of FXI shares at $25, or 37.7 percent below current levels. FXI has a 52-week low of $28.61 set on 10/4. Shares have not traded for less than $25 since March 2009.

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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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