Unusual Options Activity Review: MCP, JNPR, OSG, MNKD, FST, BID, SCHN, FSL, .SPX, .VIX, ERY
Unusual Options Activity Review For Tuesday, August 28, 2012
Tuesday's Bullish Trading
Molycorp (MCP), a rare earth materials producer, rallied $1.23 to $10.75 on heavy volume of 18.6 million shares after the company said a California plant was producing heavy rare-earth concentrate from newly mined iron ore. The materials are used in technologies like hybrid cars and wind turbines. The stock was rallying around the news Tuesday and options volume on MCP was 2.5X the daily average. 38,000 calls and 13,000 puts traded on the stock. Weekly 11 calls, which expire in just a few days and are now 2.3 percent out-of-the-money, were the most actives. 10,280 contracts traded. Weekly 10, September 10 and September 11 calls on Molycorp were busy as well.
Bullish trading was also seen in Juniper Networks (JNPR), Overseas Shipping (OSG), and Mannkind (MNKD).
Tuesday's Bearish Trading
An interesting options play trades in Forest Oil (FST) late-Tuesday. Shares of the Denver, CO oil and gas company were up 28 cents to $7.52 and an investor sold a Nov 7 ñ 8 strangle on the stock at an average of $1.425, 10000X. That is, they sold 10,000 Nov 7 puts on the stock at 65 cents per contract and sold 10,000 Nov 8 calls at an average of 77.5 cents. The positions are opening and will create the largest blocks of open interest in FST. With the stock midway between the two strikes, the position is not a bullish or bearish play, but seems to reflect expectations that FST will hold in a range through the November expiration. The best profits happen if shares hold between the two strikes and both the puts and calls expire worthless. Importantly, there's risk if the stock move higher or lower (beyond the breakevens of the strangle) because of the short options positions in both puts and calls.
Bearish trading was also seen in Sotheby's (BID), Schnitzel Steel (SCHN), and Freescale Semiconductor (FSL).
Tuesday was the lightest options volume so far in 2012, with about 8.2 million contracts traded. That's even slower than the July 3 abbreviated trading session! Many players are away on vacation ahead of the three-day Labor Day weekend and trading volumes are likely to reach better levels starting next week. In the index market, 289,000 calls and 336,000 puts traded across the S&P 500 Index (.SPX), CBOE Volatility Index (.VIX), and other cash products, which is only about half the average daily volume for the index market, according to Trade Alert data. The S&P 500 traded in a very narrow 8-point range and finished down 1.14 points to 1,409.30. The 30-day realized volatility on the S&P 5000, which is computed using closing prices, is now only 9 percent. Yet VIX, which tracks the expected volatility priced into SPX options, was little changed. The index added .14 to 16.49.
Analyzing the ETF Market
Heavy trading continued in the Direxion 3X Energy Fund (ERY) during the afternoon session. As noted in the midday report, players were showing a lot of interest in October 8 calls on the ETF Tuesday. More than 34,000 had traded by mid-session. At the end of the day, 58,600 contracts had changed hands. ERY is a leveraged exchange-traded fund designed to move 3X the inverse to the Russell Energy Index. Shares finished down 2 cents to $8.36 on the day. Since ERY moves inverse to energy-related names, buying calls on the product represents a bearish view on the sector.
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