Unusual Options Activity Review for Monday, November 12, 2012
?Monday’s Bullish Trading
NII Holdings (NIHD) has seen interesting trading activity over the past two days. The focus Friday was on December 8 calls on the Reston, VA wireless communications company and the flow created more than 10,000 contracts of new open interest. Shares lost 37 cents to $5.76 Monday and active trading continued? later into the day. Another 11,000 calls and 1,275 puts traded on the ticker. One player paid an average of 22.5 cents per contract for a hefty block of 7,600 January 8 calls on NIHD, according to a source on the exchange floor. At the end of the day, 10,200 Jan 8 calls traded on the stock against 5,638 in open interest. It’s not clear what is motivating the two days of interest in NIHD $8 calls. Shares came under pressure on earnings last week. In fact, the stock is on a six-day 25 percent losing skid. Some investors possibly see the steep drop as an opportunity to take a position in the company. However, rather than buying shares outright Monday as the stock remains volatile, they might be buying options that give the right to buy (or call) the underlying stock for a set price through a fixed expiration.
Bullish trading was also seen in Tibco Software (TIBX), Gilead Sciences (GILD), and US Airways (LCC).
Monday’s Bearish Trading
Beazer Homes (BZH) had a rough day. Shares of the homebuilder lost $2.87 to $13.77 in heavy trading of 7.9 million after the company reported a loss of $2.57 per share on $370.9 million revenues. In options action, volume in BZH was 4X the daily average. 7,330 calls and 6,750 puts traded on the ticker. The top two trades were part of a short straddle strategy after an investor sold 1,500 December 15 calls on BZH at 80 cents and sold 1,500 December 15 puts at $1.55. They collected $2.35 on the straddle and opened a new position (volume exceeded open interest in both contracts). If so, it’s not really a bullish or bearish play, but a view that shares will hold in a range around $15 through the December expiration. It doesn’t seem to be working out too well in the very short-term. The stock was at $14.25 when the trade was initiated midday, and then slipped another 3.4 percent to $13.77 into the close.
Bearish trading was also seen in Kinder Morgan (KMI), JC Penney (JCP), and Pan American Pipelines (PAA).
Index Recap
The S&P 500 Index (.SPX) had a quiet day and finished up just .15 points to 1,380.00. Volume was light, as many desks operated with skeleton crews for Veteran’s Day. 272,000 calls and 460,000 puts traded in the SPX pit. Meanwhile, CBOE Volatility Index (.VIX) made a large move, falling 1.93 points to 16.68. It’s now well (11.5 percent) below the multi-month highs of 19.08 seen on Wednesday. However, volume and volatility might pick up later in the week due to the expiration. The last day to trade many index products is Thursday. Equity and ETF options come off the board after Friday. VIX November options expire next Wednesday and the last day to trade the Nov contract is a week from Tuesday.
Analyzing the ETF Market
An impressive 121,000 puts and 9,450 calls traded on the SPDR Homebuilders Trust (XHB). As noted in the midday report, a March 20 ? 24 put spread traded on XHB for 81 cents, 9500X in morning action. Shares slipped a bit the afternoon and finished down 38 cents to $25.29 and another large spread trade surfaced in the ETF. An investor bought 21,000 XHB January 24 puts for 70 cents and sold 21,000 January 22 puts at 28 cents. That is, they bought the Jan 22 ? 24 put spread for 42 cents, 21000X. The spread traded again 18,340X at 44 cents. At the end of the day, 42,000 traded and, like the Mar 20 ? 24 put spread, the activity seems to reflect concerns about the outlook for homebuilding companies heading into 2013. BZH and DR Horton (DHI) both reported earnings Monday morning.
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