Unusual Options Activity Review for Friday, November 30, 2012
Friday’s Bullish Trading
Sandridge Energy (SD), an Oklahoma City, OK natural gas company, was up 18 cents to $5.85 in active trading of more than 20 million shares and options on the stock were busy as well. Call volume was ahead of put activity by a ratio of 7-to-1 after 23,000 calls and 3,300 puts traded on Sandridge. December 6 calls, which were now 15 cents out-of-the-money and expiring in three weeks, were the most actives. More than 8,000 contracts changed hands. January 6, December 7, March 7, March 6 and January 7.5 calls were the next most actives in SD and 30-day implied volatility in moving up 4 percent to 54. The increased activity comes after TPG-Axon sent a letter to Sandridge announcing its intent to replace current directors. The news might have stoked hopes that the company will begin to make greater efforts to boost shareholder value. SD has seriously underperformed this year, falling 28.3 percent year-to-date.
Bullish trading was also seen in Walter Energy (WLT), Dollar General (DG), and Cablevision Systems (CVC).
Friday’s Bearish Trading
James River Coal (JRCC) came under fire Friday afternoon and options on the stock saw an impressive implied volatility spike. Shares, which had rallied more than 60 percent over the past two weeks, suddenly dropped in afternoon action and fell to a low of $3.07. A V-shape rebound ensued, however, and the stock was up 17 cents to $3.71. It’s not clear what motivated the drop, as there were no headlines on the ticker. Increased options activity accompanied the volatility. About 12,000 calls and 19,000 puts traded in the coal producer. January 3 puts were the most actives, with 3,522 traded. December 2.5 and 3 puts on JRCC saw interest as well and implied volatility was up 56 percent to 123.5.
Bearish trading was also seen in Yum Brands (YUM), Elan (ELN), and Forest Labs (FRX).
Index Recap
Overall volumes in the index pits were very light this week and slowing even further ahead of the weekend, but CBOE Volatility Index (.VIX) saw an uptick. About 512,000 puts and 366,000 calls traded on VIX, S&P 500 Index (.SPX) and other index products, which is only about 67 percent of the expected (average daily) volume, according to Trade Alert data. Players might be reluctant to buy index premiums heading into a historically slow period for the equity market in late-December because of the risk of time decay. For whatever reason, volumes were light in the index pits. However, VIX was ticking up 1 point to 16.06 and, since the index tracks the expected or implied volatility priced into S&P 500 Index options, the increase in the index might reflect a bit of nervousness among investors ahead of the weekend. However, VIX hasn’t seen any dramatic moves in November and is down about 14 percent for the month. The S&P 500 has added just two points for the month.
Analyzing the ETF Market
Overall options volumes in the exchange-traded funds were running about the typical levels and being driven by heavy trading in very short-term contracts Friday. A total of 3.14 million calls and 1.9 million puts have traded on the S&P 500 Trust (SPY), PowerShares QQQ (QQQ) and other ETFs. Looking at the most actives, 877,000 calls and 1.66 million puts have traded in SPY. Of that, more than a half million contracts were in the Weekly options that expire after Friday. In fact, the three most actively traded options contracts across the market Friday were SPY Weekly 141.5 puts, 142 calls, and 142 puts. Shares were down 12 cents to $142 and the heavy trading in those contracts, which come off the board after Friday, seemed to include a mix of closing activity and also players making very short-term views on how the market will close on the final day of trading for November 2012.
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