Unusual Options Activity Review: LIZ, KSS, FDO, RIO, GE, RSH, RENN, STT, .SPX, .OEX, .VIX, XLF

Posted April 1st, 2012 by Joseph Cusick in Unusual Activity

Unusual Options Activity Review For Friday, March 30, 2012

Friday's Bullish Trading
Liz Claiborne (LIZ) saw an afternoon spike on heavy volume after the Wall Street Journal reported that the company was in talks with private equity firms about a $20 per share buyout. The stock hit an afternoon high of $15.49, but has since given back much of the gains and is up $1.19 to $13.03. Share volume is a brisk 18 million, or more than 4X the daily average for LIZ. Meanwhile, options volume is running 6X the daily average. 20,000 calls and 2,880 puts traded on the stock. April 14 and 15 calls are the most actives, as some players might be taking positions in upside calls on hopes additional buyout news may lift shares in the short-term. April equity options expire in three weeks.

Bullish trading was also seen in Kohl's (KSS), Family Dollar Stores (FDO), and Rio Tinto (RIO).

Friday's Bearish Trading
The largest options trades Friday are in General Electric. GE is up 11 cents to $20.06 and one of 27 Dow stocks helping the industrial average end the first quarter on a strong note. In midday options action, a 40,000-contract block of GE April 21 calls traded at 11 cents per contract when the market was 11 to 12 cents. Another 35,000 traded at 10 cents per contract. Both blocks traded on the ISE and are apparently closing sales. If so, the hefty premium selling probably exits positions opened earlier this month when 82,700 of the Apr 21 calls on GE were bought for 18 cents per contract to open. The stock hasn't moved much since that time and the position is probably being liquidated for a loss. It's not necessarily bearish trading, but reflects diminishing expectations for a move in GE shares beyond $21 (+4.7%) through the April expiration (21 days).

Bearish trading was also seen in Radioshack (RSH), RenRen (RENN), and State Street (STT).

Index Recap

The first quarter 2012 is ending in quiet fashion. The S&P 500 Index is up 4.87 points to 1,408.15 and not too far from the multi-year highs of 1,419.15 set earlier in the week. The index gained roughly 12 percent for the quarter. Trading was slow Friday, as many pros have probably already squared the books for the first quarter and are now waiting to take positions for the second quarter on Monday. 398,000 puts and 533,000 calls traded on the S&P 500 Index (.SPX), the S&P 100 Index (.OEX) and the other cash indexes. Not much volatility is being seen. CBOE Volatility Index (.VIX) ticked up .13 to 15.61 and is up 14.3 percent from the levels seen mid-month. Still, VIX lost 33.3 percent in the quarter, as falling levels of volatility was perhaps the biggest story for options traders in the first three months of 2012.

Analyzing the ETF Market
SPDR Financial Fund (XLF) is up 7 cents to $15.78 on light volume of 47 million shares following a strong quarter for the sector. XLF is one of nine sector funds that collectively hold the five hundred S&P 500 names grouped by sector. The ETF, which holds all of the financial-related names from the S&P 500, led all nine with a gain of 21.5 percent during the first quarter. Options volume Friday, at 125,000 contracts, is also well below the typical volume of more than 300,000 XLF contracts. However, one noteworthy trade was seen late in the day when a strategist sold 20,000 June 16 calls on the fund at 49 cents, bought 10,000 June 15 calls for $1.13 and bought 10,000 June 17 calls for 16 cents. This June 15 ñ 16 ñ 17 call butterfly spread, for a 31-cent net debit, appears to be a view that XLF may level off and trade somewhat sideways over the next few weeks. The position offers its best payout if the stock trades to $16 through the expiration, which represents a gain of about 1.4 percent over the next two and half 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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