Unusual Options Activity Review: TXN, JRCC, BSX, TSN, ARCO, SNTA, CLDX, VPHM, .SPX, .OEX, .VIX, SPY, XLF

Posted March 6th, 2012 by Joseph Cusick in Unusual Activity

Tuesday's Bullish Trading
Texas Instruments (TXN) lost 7 cents to $32.12 and call volume outpaced put volume on the chipmaker by a ratio of nearly ten-to-one. 21,000 calls and 2,250 puts traded on TI Tuesday. The top trades surfaced in afternoon action after one investor bought 4,000 April 31 calls on TXN for $1.79 and sold 4,000 April 34 calls at 38 cents. The April 31 ñ 34 call spread, for a $1.41 net debit, is a bullish play that offers its best payoff if shares rally to $34 or beyond through the April expiration, which represents a 5.9 percent gain over the next 45 days. Bullish trading in TXN today is noteworthy because it comes ahead of the company's mid-quarter update, due out Thursday afternoon.

Bullish trading was also seen in James River Coal (JRCC), Boston Scientific (BSX), and Tyson Foods (TSN).

Tuesday's Bearish Trading
Arcos Dorados Holdings (ARCO), Latin America's largest restaurant chain and biggest McDonald's franchisee, traded down 55 cents to $18.65 today on heavy turnover of 5.1 million shares and has tumbled 10.2 percent since earnings were reported Monday morning. The stock is well off the highs of $29.40 seen in September 2011. Meanwhile, some players in the options market may be bracing for additional losses in ARCO shares. 4,600 puts and 575 calls traded on the stock Tuesday. August 17.5 puts, which are 6.2 percent out-of-the-money, were the most actives. 3,089 traded and 98 percent of the volume traded at the offer, suggesting buying interest. April and May 17.5 puts saw interest as well and implied volatility in ARCO options rose nearly 5 percent to 47.

Bearish trading was also seen in Synta Pharmaceuticals (SNTA), Celldex Therapeutics (CLDX), and ViroPharma (VPHM).

Index Recap
Volume picked up in the options market Tuesday. For example, 627,000 calls and 818,000 puts traded on the S&P 500 Index (.SPX), the S&P 100 Index (.OEX) and other cash index products, according to Trade Alert data. The S&P 500 traded in a 23-point range and lost 20.97 points to 1,343.36. Meanwhile, CBOE Volatility Index (.VIX), which tracks the expected or implied volatility priced into S&P 500 Index options, was up 2.92 to 20.87. Taken together, higher volumes in the index market and a rising VIX are often signs that investors are becoming more defensive and taking out protective positions with index puts. Importantly, however, the uptick in VIX has been modest so far. The index is still well below the levels seen in early-October when the indicator rallied to more than 45.

Analyzing the ETF Market
Trading was very busy in the world of exchange-traded funds as well. 1.4 billion shares traded on the SPDR 500 Trust (SPY), SPDR Financials (XLF) and other ETFs. Typical daily volume so far in 2012 has been less than a billion. Meanwhile, 4.7 million puts and 3.5 million calls traded across all products, which is about 50 percent more than normal. Players scrambled to buy downside puts on some of the exchange-traded fund products to hedge stock portfolios. SPY March 134 puts, March 135 puts, Weekly 134 puts and March 130 puts were the most actively ETF contracts. SPY, which is the popular ETF that holds all of the S&P 500 stocks, lost $2 to $134.75.

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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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