Unusual Options Activity Review: GRPN, AKAM, ARNA, MU, STJ, CAVM, EA, WM, .VIX, TLT
Unusual Options Activity Review For Monday, March 26, 2012
Monday's Bullish Trading
Groupon (GRPN) has not performed well since its early-November Initial Public Offering, but one player in the options market seems to be positioning for a rebound. GRPN added 49 cents to $17.38 Monday and is now 44.2 percent below its post-IPO high of more than $31 per share. Meanwhile, 19,000 calls and 12,000 puts traded on the stock. Much of the volume was due to one trade. In afternoon action, an investor sold 9,800 October 13 puts on the stock at $1.55 per contract and bought 9,800 October 20 calls for $1.10 each. The investor is probably a willing buyer of the stock for $13 per share and initiated the bullish "risk-reversal" at a 45-cent net credit. By selling $13 puts, they're making the statement that they are willing to buy the stock at that price. However, owning $20 calls also gives them exposure to the upside if the stock makes a dramatic move higher between now and mid-October.
Bullish trading was also seen in Akamai (AKAM), Arena Pharmaceuticals (ARNA), and Micron Technology (MU).
Monday's Bearish Trading
St. Jude Medical (STJ) was the focus of increased put activity Monday. Shares of the St. Paul, MN medical device maker added 33 cents to $43.80 and options volume on the stock was 6,900 puts and 525 calls, which is 4X the daily average for the name. The activity was mostly in smaller sizes. The top trade was a 530-lot of April 42.5 puts traded at the $1.05 asking price. 3,200 traded total. Another 3,085 Apr 40 puts also traded. Although the stock ticked higher, levels of implied volatility in STJ options rose 4.5 percent to 29, which seems to suggest that premium buyers were dominating the action. Some investors might have buying puts to hedge shares after Bloomberg posted an article suggesting that the company's Riata heart wire has a possible defect causing a fatal short circuit in patients.
Bearish trading was also seen in Cavium Networks (CAVM), Electronic Arts (EA), and Waste Management (WM).
Index Recap
Options on the CBOE Volatility Index (.VIX) were actively traded Monday. VIX lost .56 to 14.26 and is probing multi-year lows just below 14. Meanwhile, 303,000 calls and 374,000 puts traded in the VIX pit Monday. April 15 puts were the most actives, with almost 40,000 contracts changing hands. April 16, April 18, and April 19 puts on VIX were the next most actives. April options on the index expire on Wednesday Apr 18, which is the Wednesday before the standard expiration. Some investors are now possibly closing out positions in the April puts on VIX on the view the recent decline, which has brought the index down from 45.45 since early-October, has run its course. Others might be buying short-term VIX puts on expectations for further declines in volatility between now and the April expiration. VIX options are not based on the VIX itself, but off forward values. The forward values and the actual index converge at the expiration, but the actual settlement values for VIX options at the expiration depend on levels of volatility at that time.
Analyzing the ETF Market
iShares Long-Term Treasury Bond Fund (TLT) lost 58 cents to $112.63 per share and, in morning options action, a block of 18,574 June 107 puts traded on the ETF. The block hit on the $1.61 bid on the International Securities Exchange. An investor apparently sold the block and was possibly closing an open position. Then later, 22,920 June 100 puts traded on the fund for 56 cents per contract. The market was 52 to 56 cents at the time and this appears to be a new position. The same investor might have initiated both trades and rolled a position down in strikes. TLT has been under pressure amid falling Treasury bond prices in the past few weeks. Shares are down 3 percent month-to-date and today's investor, who bought a new position in June 100 puts on the fund, is apparently bracing for further losses in the bond market in the months ahead.
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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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