Unusual Options Activity Review for Monday, November 5, 2012
Monday’s Bullish Trading
ARM Holdings (ARMH) was up to new 52-week highs in active trading of 3.1 million shares after Bloomberg TV ran a headline suggesting that Apple (AAPL) might be shifting chips for some of its products away from Intel and to other chipmakers. ARMH seemed to react positively to the headline and finished up 88 cents to $34.08. Meanwhile, options volume on the stock was 4,460 calls and 910 puts, a ratio of almost five-to-one. November 36 calls, which are now 5.6 percent out-of-the-money and expiring in 11 days, were the most actives. 1,425 contracts traded. November 35 calls were the next most actives. 1,322 changed hands.
Bullish trading was also seen in Hess (HES), Hovnanian (HOV), and Foster Wheeler (FWLT).
Monday’s Bearish Trading
General Dynamics (GD), the Falls Church, VA aerospace and defense company, lost 44 cents to $68.37 and options volume on the stock was 5.5X the daily average. About 8,900 puts and 1,540 calls traded on the ticker. The flow was heavily concentrated in January 62.5 puts. More than 7,000 traded against 2,646 in open interest. The activity included a 2300-lot for $1.10 when the market was $1.05 to $1.10. Jan 62.5 puts on GD are 8.6 percent out-of-the-money and expiring in 74 days. Some investors were possibly taking positions in the contract to help hedge stock holdings heading into the elections, as the victory of one candidate over the other could potentially lead to increased defense budget spending cuts.
Bearish trading was also seen in EBIX.com (EBIX), Moody’s (MCO), and Guidant Systems (GD).
Index Recap
CBOE Volatility Index (.VIX) ticked higher despite little movement in the S&P 500 Index (.SPX) Monday. The S&P traded in an 11.8-point range and finished up 3.06 points to 1,417.26. Meanwhile, VIX, which tracks the expected volatility in SPX options and often ticks lower when SPX edges higher, added .83 to 18.42. VIX is on a two-week 22.6 percent run higher ahead of the elections. Monday’s gains in the index on a day of relatively quiet market action is possibly a sign that some investors are bracing for an uptick in market volatility ahead of the vote and possibly larger daily market swings than what was seen Monday as well as the past few weeks. The actual volatility of the S&P 500 over the past thirty days, which is based on the annualized standard deviation of closing prices, is only 12.2 percent — obviously well below the VIX.
Analyzing the ETF Market
Call options on the SPDR Financial Fund (XLF) were busy Monday. XLF, which is an exchange-traded fund representing ownership in shares of all of the financial-related companies from the S&P 500, finished the day down 3 cents to $15.97. In options action, 191,000 calls and 67,000 puts traded on the ETF. November 16 calls were the most actives. 46,140 traded. The contract is now 3 cents out-of-the-money and expiring in 11 days. XLF has been chopping around in a range over the past two months, but is up about 14.1 percent since May. Some investors might be taking positions in Nov 16 calls on the ETF on hopes another move higher will surface in the next 9 trading days. Others were focused on the December 17 calls, which traded 39,000 contracts. Weekly 16 and 16.5 calls on XLF, which expire on 11/9, also traded more than 39,000 contracts.
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