Unusual Options Activity Review: VRX, IMAX, OSG, AEO, MSFT, STI, PHM, PTEN, .SPX, .VIX, XLE
Unusual Options Activity Review For Monday, March 12, 2012
Monday's Bullish Trading
A couple of interesting spread trades surfaced in Valeant Pharmaceuticals (VRX) Monday. Shares of the Canadian pharmaceutical company lost 99 cents to $54.49 and in midday action, a block of 3,880 July 42 puts traded on the stock at $1 per contract when the bid-ask was 90 cents to $1.20 and, at the same instance, 3880 July 62.5 calls traded on VRX for $2 when the market was $1.85 to $2.05. Taken together, it appears that the strategist was selling puts to buy calls, and paying a $1 net debit to open a new bullish risk-reversal in VRX. Separately, about thirty minutes earlier, an April 50 ñ July 55 call diagonal spread traded on the company. In this play, the strategist apparently sold 2,590 April 50 calls on the stock at $5.40 per contract and bought 2,590 July 55 calls for $4.90. VRX is up 47 percent since September and the diagonal spread probably rolls a position from April to July and up five strike prices. Like the risk-reversal, the spread seems to express a bullish view that shares may continue moving higher through mid-July.
Bullish trading was also seen in IMAX, Overseas Shipping (OSG), and Agnico Eagle Mines (AEO).
Monday's Bearish Trading
Microsoft (MSFT) was the subject of an interesting trade Monday. Shares added a nickel to $32.04 and were among 21 Dow stocks moving higher. Yet, volume was light. 33.6 million shares traded in MSFT, which is about 70 percent the normal levels. Similarly, 109,000 options traded on the stock and that compares to typical volume of 156,000 contracts. The top trades surfaced early in the afternoon when 10,530 March 32 puts traded on Microsoft at 23 cents and 10,530 April 32 puts traded for 84 cents. This Mar ñ Apr 32 put calendar spread, for a 61-cent debit, is an opening position, according to data from the options exchange. If so, the spread may payoff if MSFT holds at current levels (or above the $32 strike) through the expiration later this week, and then makes a significant move lower through the April expiration.
Bearish trading was also seen in Suntrust Banks (STI), Pulte Group (PHM), and Patterson Energy (PTEN).
Index Recap
The S&P 500 Index (.SPX) battled back from early losses and edged up .22 to 1,371.09 Monday. Meanwhile, CBOE Volatility Index (.VIX), which tracks the expected volatility of S&P 500 Index options, was under pressure and lost 1.47 points to 15.64. In doing so, the index closed at its lowest levels since late-May 2011. Yet, overall options volume in the VIX pit was light Monday. 174,000 calls and 123,000 puts traded in the product. March 17 puts were the most actives. 25,340 changed hands and the top trade was a lot of 2300 traded on the 38-cent bid. Some investors might be liquidating positions in these puts on the view that the recent decline in the index might have run its course which is now on an impressive 25-percent four-day losing skid.
Analyzing the ETF Market
Options on the SPDR Energy Fund (XLE) were actively traded Monday. XLE, which is an exchange-traded fund that represents ownership in all of the energy-names from the S&P 500, finished down 41 cents to $73.78 after many of the energy-related names slumped along with crude. Oil lost $1 to $106.40 Monday. Natural gas was down 6 cents to $2.62 and heating oil dipped 1.1 cents to $3.25. Meanwhile, in XLE options action, 82,000 puts and 15,000 calls traded on the ETF Monday. The top trade of the day was a June (Quarterly) 71 ñ September 74 put spread for $3.07, 20000X. In this spread, the strategist bought 20,000 September puts on the ETF for $5.97 and sold 20,000 June Quarterlys for $2.90. The action probably rolls a position from the Quarterly options, which expire at the end of June, to a new position in the September contracts. They are also rolling up in strikes prices after a 26.1 percent advance in XLE since September 2011. An investor with a large portfolio of energy-related stocks might have initiated the spread to adjust a hedge.
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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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