Friday’s Bullish Trading
UPS closed down -.18 to finish $73.02 and options activity is running 2.5X the daily average. About 28,000 calls and 2,250 puts traded in UPS, a ratio of more than 12-to-1. April 75 calls, which are 2.4 percent out-of-the-money and have 5,298 in open interest, are the most actives in UPS. More than 18,000 traded. The top trade is a 6000-lot for $2.03 per contract when the market was $1.98 to $2.03. January 70, April 70 and April 72.5 calls are busy as well. It’s not clear what is motivating the activity, as share volume is 2 million and well below the recent average daily levels. There have been no obvious headlines on the ticker today. UPS moved higher earlier this week on upbeat earnings results. Some investors might be taking positions in upside April calls on the stock on hopes the company will deliver strong results when it reports again in late-January.
Bullish trading was also seen in Foot Locker (FL), Verisign (VRSN), and EOG Resources (EOG).
Friday’s Bearish Trading
Gamestop (GME) closed down 72 cents to finish at $23.00 and an interesting options trade on the stock is a combination play, after 7,100 November 21 puts traded on the video game retailer for 56 cents and 7,100 November 25 calls at 41 cents. Both blocks traded at the same time on the International Securities Exchange and data from ISE indicate the calls were sold to buy puts. The combo traded 10000X on the day and is opening activity (volume exceeds open interest). The bearish “risk-reversal” might be a play on earnings. GME is expected to report around November 15. The stock has rallied 28.3 percent since earnings were last reported and a shareholder might have initiated the trade to hedge the gains or “collar” a stock position ahead of the results.
Bearish trading was also seen in Activision Blizzard (ATVI), AOL, and Agilent (A).
Index Recap
Overall action in the index market is very light today and offering very little to write about. The S&P 500 Index (.SPX) closed down 1.03 to finish 1411.94 and CBOE Volatility Index (.VIX), which tracks the expected volatility priced into SPX options, closed down .31 to 17.81. Only 362,000 calls and 504,000 puts traded on VIX, SPX and other cash products today. Average daily volume over the past month is about 581,000 calls and 583,000 puts, according to Trade Alert data. There seems to be little demand for portfolio insurance (index puts) in today’s market. Although the S&P 500 tumbled 24 points and suffered its third biggest loss of the year on October 19, and then saw another sizeable drop on Tuesday, the longer-term trend is one of low volatility. The 30-day actual volatility of the S&P 500, which is based on closing prices of the SPX Index, is only 11.1 percent. So at 17.54, VIX is at relatively high levels compared to the market’s actualized volatility ? suggesting perhaps that market participants anticipate (are pricing-in) the potential for higher volatility going forward compared to the recent past.
Analyzing the ETF Market
SPDR Financials (XLF) lost 8 cents to finish at 15.80 and more than 116,000 November 16 calls traded on the ETF, making it today’s second most actively traded options contract (behind Weekly 141 puts on SPY). The top trade is a 20000-contract block at 20 cents when the market was 20 to 21 cents. Another 11,447 traded at 19 cents earlier in the day. Open interest in the Nov 16 call on XLF is 165,914 and the contract is falling 18 cents out-of-the-money with three weeks of life remaining. So today’s heavy trading might be liquidating activity. That is, investors had bought positions on hopes for a substantial rally in the banks and brokers, but are now closing out positions on diminishing hopes for a move in XLF beyond $16 per share by the November expiration. XLF is an exchange-traded fund that holds all of the financial-related names from the S&P 500.
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