Thursday’s Bullish Trading
Anadarko Petroleum (APC), The Woodlands, TX oil and gas exploration and development company, dropped 79 cents to $74.45 Thursday and options volume on the stock was 4X the daily average, driven by a three-way spread. An investor sold 7,350 May 70 puts on the stock at an average of $4.225 per contract, bought 20,406 May 80 calls for $4.30 and sold 20,406 February 80 calls at $2.12. Looking at open interest and trade history, the activity in the Feb 80 calls is possibly a closing position, as OI is 39,908 contracts. The big block of May 80 calls appears to be a new position, as volume was greater than open interest. Therefore, the investor is probably rolling a bullish position out three months and using a downside put write to help finance the trade. If so, they are probably a willing buyer of the stock for $70 (writing May 70 puts), but are looking for the stock to move higher and opening a position in upside (May 80) call options. APC was down Thursday, but has been grinding 12.5 percent higher, off late-October lows.
Bullish trading was also seen in Hewlett Packard (HPQ), MBIA (MBI), and JC Penney (JCP).
Thursday’s Bearish Trading
Research In Motion (RIMM) gained 55 cents to $13.86 on heavy turnover of more than 80 million shares on news the US Dept of Immigration and Customs would introduce the upcoming Blackberry 10 to a pilot program. The huge government agency had previously axed Blackberry in favor of Apple’s iPhone. On the options front, trading was heavy in RIM today. 178,000 calls and 135,000 puts. The largest trades were part of a spread, in which the investor bought 7,000 December 13.5 puts on the stock for 76 cents and sold 7,000 December 12 puts at 23 cents. The spread, for 53 cents, was an opening position, according to data from the exchange, and might have been initiated to help hedge recent gains in the shares ahead of a December 20 earnings report. RIMM has rallied 75 percent since October.
Bearish trading was also seen in Chesapeake (CHK), Align Technologies (ALGN), and Goodyear Tire (GT).
Index Recap
CBOE Volatility Index (.VIX) saw a modest uptick Thursday, but overall volumes in the index market remain very light. VIX edged up .61 points to 16.56 after the S&P 500 Index (.SPX) dropped 9.03 points to 1,419.45. Total options volumes across VIX, SPX, and other cash indexes was about 667,000 calls and 657,000 puts, which is 92 percent the average daily volume for the index market, according to Trade Alert data. Overall SPX put volume has been light for the past few weeks ahead of the seasonally slow period for the equity market into the holidays. The lack of volume is probably one reason VIX is only in the mid-teens. Another reason is that S&P 500 actual or realized volatility is very low. SPX 30-day historical volatility, which is based on closing prices, is only 11 percent. Since VIX tracks the expected or implied volatility of SPX options, the drop in actual or realized volatility is possibly another reason the index sits in the mid-teens.
Analyzing the ETF Market
iShares iBoxx High Yield Corporate Bond Fund (HYG) lost 33 cents to $93.33 and options volume on the ETF was 4X the daily average, driven by a three-way put spread. In this strategy, the investor apparently sold 16,000 December 91 puts on HYG at a nickel per contract, bought 15,000 January 92 puts for 80 cents each and sold 15,000 January 90 puts at 40 cents. Looking at trade history and open interest, the December 91 puts is possibly a closing trade, as open interest is 27,284 contracts and the largest position in HYG. The contract expires at the end of next week. The action in the Jan puts appears opening. So, the overall spread trading looks like a roll, in which the investor had a bearish position opened in December downside puts that are $2.33 out-of-the-money ahead of next week’s expiration. They are now closing it and opening a new bearish play in the Jan 90 ? 92 put spread for 40 cents, 15000X.
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