Unusual Options Activity Review: NTAP, BX, URBN, TTM, X, NDAQ, AZN, R, .VIX, .SPX, XLF

Posted May 21st, 2012 by Joseph Cusick in Unusual Activity

Unusual Options Activity Review For Friday, May 18, 2012

Friday's Bullish Trading
NetApp (NTAP), a Sunnyvale, CA data storage device-maker, fell to new 52-week lows Friday and finished down $1.21 to $33.06 in active trading of 9.7 million shares. 48,000 calls and 37,000 puts traded on the stock. June 33 and June 40 calls were the most actives and included some spread trading. In morning action, an investor bought 4,500 June 33 calls on NTAP for $2.47 and sold 4,500 June 40 calls at 53 cents. The spread, for a $1.94 debit, traded multiple times on the International Securities Exchange and data from the ISE indicate that an investor was rolling a position down in strikes ñ i.e. closing out a position in June 40s to open a new one in June 33 calls. The stock is down 26.2 percent since March and the investor was probably opening a new position that has greater probability of being in-the-money at expiration. The position adjustment comes ahead of NetApp's May 23 earnings report.

Bullish trading was also seen in Blackstone (BX), Urban Outfitters (URBN), and Tata Motors (TTM).

Friday's Bearish Trading
US Steel (X) loses 87 cents to $21.56 Friday and options action on the steelmaker included 44,000 puts and 25,000 calls. Some spread trading accounted for about half of the put volume. In afternoon trading, one investor apparently bought 8,200 January 25 puts on X for $6.10 and sold 8,200 January 20 puts at $3.30. The spread, for a $2.80 net debit, traded more than 10000X and appears to be a bearish play targeting a move to $20 through the January expiration, or a decline of 7.2 percent, or less by January 2013. If so, the spread will widen to $5 and the profit is equal to 5 minus the debit paid. The breakeven at expiration is at $22.2 and the entire debit is at risk if the position is left open through the expiration and shares recapture $25 or more. US Steel is down 52.8 percent from a year ago.

Bearish trading was also seen in NASDAQ OMX Group (NDAQ), Astra Zeneca (AZN), and Ryder (R).

Index Recap
CBOE Volatility Index (.VIX) made a run at 25 for the first time so far in 2012. The index, which tracks the implied volatility priced into S&P 500 Index (.SPX), finished up .61 to 25.1 and near session highs. The so-called "fear gauge" has moved higher in ten of the past 12 trading sessions and has rallied 51.1 percent since May 1. The rally in the index comes amid defensive trading in the options market. Early estimates from Trade Alert show 13.7 million puts and 10.4 million calls traded across the exchanges Friday, yielding a total put-to-call ratio of 1.31. Friday marks the fourth consecutive trading session the ratio has been greater than 1.0, which is the longest streak so far in 2012. High put-to-call ratios typically happen in periods of rising bearish sentiment.

Analyzing the ETF Market

SPDR Financials (XLF) lost 16 cents to $13.77 on heavy volume of 122.5 million shares and options on the exchange-traded fund remained actively traded Friday. 412,000 puts and 221,000 calls traded on the ETF. The flow included a morning buyer of 50,000 June 13 puts for 21 cents per contract and a buyer of 23,000 August 13 puts for 54 cents. Some of the buying might be rolling out of May 14 puts, which are in-the-money and have reached expiration. 71,900 XLF May 14 puts traded on XLF. Not all of the flow was bearish, however. Late trades on the fund included a buyer of 46,000 June 15 calls on XLF for 7 cents and 25,000 June 14 calls for 34 cents per contract. The investor might have a bullish view on the financials and wants exposure to the group, but rather than buying shares today, they are buying upside calls that give the right to buy XLF at a preset price in the future. The ETF holds all of the financial names from the S&P 500.

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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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