Unusual Options Activity Review for Tuesday, December 4, 2012
Tuesday’s Bullish Trading
Safeway (SWY) saw increasing options activity late Tuesday. Shares of the grocery chain added 10 cents to $17.01 and options volume was 4.5X the daily average. About 11,000 calls and 1,900 puts traded on SWY Tuesday. Much of the flow (nearly three-quarters) was concentrated in January 17.5 calls on SWY. One of the largest trades was an 1841-contract block for 50 cents per contract on the International Securities Exchange. The block was an opening purchase, according to data from the ISE. At the end of the day, 9,671 January 17.5 calls traded on SWY against 5,729 in open interest. The contract is 2.9 percent out-of-the-money and expiring in 45 days. It’s not clear what motivated the interest. Most of the action surfaced with 15 minutes of the closing bell, but there were no obvious company headlines on the stock to explain the activity.
Bullish trading was also seen in AMD, NYSE Euronext (NYX), and Credit Suisse (CS).
Tuesday’s Bearish Trading
Gap Stores (GPS) fell sharply and options activity picked up in the apparel retailer Tuesday. The stock shed 10.3 percent to $30.94 and some news services attributed the decline to the company’s dividend policy. According to Reuters, the stock came under pressure after the company confirmed that it will not change its dividend policy, even as other companies have announced plans for special dividends. For whatever reason, GPS was down sharply Tuesday and options volume on the stock was almost 10X the daily average. Roughly 50,000 puts and 33,000 calls traded on the stock. December 33 puts were the most actives after 7,900 contracts traded and implied volatility in GPS options was up 36 percent to 34.
Bearish trading was also seen in Pandora (P), Pitney Bowes (PBI), and SAP.
Index Recap
Overall volumes in the index pits were light, but CBOE Volatility Index (.VIX) continues to tick higher. 519,000 calls and 575,000 puts traded in the S&P 500 Index (.SPX), VIX and other cash indexes Tuesday, which is only about 74 percent the average daily volume over the past month, according to Trade Alert data. The S&P 500 was down 2.41 points to 1,407.05 and VIX, which tracks the expected or implied volatility in a strip of SPX options, rose .48 to 17.12. The volatility index is now on three-day 13.7 percent winning streak. So, while volumes in the index market have been light, implied volatility of SPX options are possibly beginning to tick higher ahead of yearend and, if so, maybe suggesting the market is bracing for or “pricing in” the odds of a bit more market volatility in early-2013, compared to late-2012.
Analyzing the ETF Market
iShares China Fund (FXI) adds 21 cents to $37.01 and the top options trades in the ETF Tuesday were focused on the January 2014 options. To add more details, a three-way spread was initiated after 10,000 Jan14 $33 puts traded on FXI at $2.40, 20,000 Jan14 40 calls traded for an average of $2.005, and 20,000 Jan14 45 calls printed at 78 cents. The hefty blocks of options traded on ISE and data from the exchange was reporting the 10000 Jan 33 puts were sold-to-open and 20000 Jan 40 ? 45 call spreads were bought to open (bought 40s, and sold 45s). If so, the investor is probably a willing buyer of the ETF for $33 per share through the January 2014 expiration and is writing $33 puts. They are also opening a new position in the 40 ? 45 call spread to participate if China’s equity markets see a substantial advance through 2013.
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