Unusual Options Activity Review: MS, EMC, WCRX, SKS, TSLA, DF, LVLT, VIX, SPX, SPY, QQQ, XLB, XLI, XME
Unusual Options Activity Review For Monday, May 14, 2012
Monday's Bullish Trading
Morgan Stanley (MS) gave up 65 cents to $14.30 and options on the investment bank were heavily-traded Monday. 130,000 puts and 55,000 calls traded on the stock today. Large put spreads accounted for some of the activity, as one investor apparently bought 20,000 May 16 puts on the stock for $1.55 and sold 20,000 June 16 puts at $1.82. The spread, for a 27-cent credit, traded again another 20,000X. Open interest in the May 16 puts on MS is 131,075 and the largest open position in the name. Todayís spread appears to roll some of those positions out one month. 40,000 contracts were probably being bought-to-close today to avoid assignment heading into expiration. The 16 put option on MS is now 11.9 percent in-the-money. The investor was also selling-to-open a new position in 40,000 June 16 puts and, if so, making a decidedly bullish bet on the stock. Shares are down 26.5 percent since March and so the investor is possibly looking for the stock to recover some of the losses and recapture $16 through mid-June.
Bullish trading was also seen in EMC, Pandora Media P, and Warner Chilcott (WCRX).
Monday's Bearish Trading
Saks (SKS) might be a name worth watching tomorrow morning. The retailer is due to report earnings before the opening bell and saw a flurry of options action today ahead of the news. Shares slipped 21 cents to $10.05 and 13,000 options traded on the stock. By way of comparison, average daily volume is about 600 contracts. May 10 puts, which are almost at-the-money after a two-week 11.2 percent skid in Saks shares, were the most actives. More than 8,000 traded. Some investors might have been buying short-term ATM puts to help hedge the earnings event risk. May options expire at the end of the week. May 11 calls and August 10 puts on SKS saw interest as well.
Bearish trading was also seen in Tesla Motors (TSLA), Dean Foods (DF), and Level 3 (LVLT).
Index Recap
CBOE Volatility Index (VIX) jumped 1.98 to 21.87 and is up 27.5 percent month-to-date. The marketís ìfear gaugeî finished the day near session highs and at its best closing levels in almost four months. While volumes in the index puts were light last week, signs of hedging activity surfaced today. 700,000 puts and 268,000 calls traded on the S&P 500 Index (.SPX). The S&Ps lost 15.04 to 1,338.35 and May 1,300 puts were the most actively traded index contracts on the day. More than 98,000 traded, as some players might have been taking positions in the contract on concerns the volatility will continue through the remainder of the week. May 1,300 puts on the S&P 500 are now 2.9 percent out-of-the-money with just three trading days of life remaining.
Analyzing the ETF Market
Trading was heavy in the exchange-traded funds [ETF] Monday, with 4.1 million puts and 2.3 million calls traded on the SPDR 500 Trust (SPY), the Powershares QQQ (QQQ), and other products. As noted in the midday report, puts on the ìSPYdersî were very busy. 1.8 million contracts traded in the product. A number of sector ETFs were seeing high put volume due to rolling activity. For instance, large blocks of May 34 puts on the SPDR Basic Materials Fund (XLB) totaling 62,400 contracts traded today. 19,800 XLB June 34 puts also changed hands. XLB was off 48 cents to $34.52 and it appears that one or more investors were selling out-of-the-money May puts on XLB and rolling to the June puts at the same strike. SPDR Industrials (XLI) and SPDR Metals and Mining Fund (XME) saw similar activity. Rolling will be a factor driving volumes this week, as May options expire on the 19th.
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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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