Unusual Options Activity Review for Friday, December 14, 2012
Friday’s Bullish Trading
CSX, the Jacksonville, FL railroad company, has been chugging along lately. Shares are up 17 cents to $19.91 Friday and have gained 5.5 percent off mid-November lows. Options on the stock are busier than normal Friday. Roughly 15,000 calls and 970 puts traded in the name so far. January 21.67 calls, which have an unusual strike price due to a contract adjustment after a three-for-one stock split last year, are the most actives in the name. 9,133 traded against 6,912 in open interest. May 20 and 22.5 calls are seeing interest as well. It’s not clear what is motivating the higher call volumes in CSX Friday, as there are no headlines to report and share volume is about 6 million, or 2 million more than normal levels.
Bullish trading was also seen in Micron Technology (MU), DISH, and US Steel (X).
Friday’s Bearish Trading
Qualcomm (QCOM) dropped $2.49 to $60.27 in active trading of more than 27 million shares after an analyst slashed estimates for 2013 iPad and iPhone sales. QCOM is a supplier to some of the products developed by Apple. Shares are down hard on the cautious analyst commentary and more than 140,000 options have traded in Qualcomm Friday. January 57.5 puts, which are 4.5 percent out-of-the-money and expiring in five weeks, are the most actives in QCOM. Volume is approaching 19,000 contracts. January 62.5 calls and January 55 puts are actively traded as well, while 30-day implied volatility in options on the chipmaker moved up 20.5 percent to 26.
Bearish trading was also seen in Smith and Wesson (SWHC), Range Resources (RRC), and Tellabs (TLAB).
Index Recap
The S&P 500 Index (.SPX) is down 5.63 points to 1,413.82 and has lost 5 points since last Friday after a relatively quiet of trading. The 30-day actual or historical volatility of the S&P 500 has dropped to slightly less than 10 percent. HV is based on the annualized standard deviation of closing prices over a specific number of days. Meanwhile, CBOE Volatility Index (.VIX), which tracks the expected or implied volatility priced into SPX options, is ticking up .50 points to 17.06. The fact that VIX is significantly higher than the market’s actual market (over the past thirty days), could be an indication that participants in the options market are “pricing in” or discounting the potential for increasing volatility in the weeks/months ahead. In other words, they don’t expect the very low volatility seen in the past month to last heading into 2013.
Analyzing the ETF Market
Overall action in the exchange-traded funds market has been quiet this week, but the SPDR Financials (XLF) options are seeing a bit more volume than usual Friday. Shares, which represent ownership in all of the financial-related names in the S&P 500, are down 6 cents to $16 and 161,000 options traded on the ETF. The flow includes 115,000 puts and 46,000 calls. Two of the top trades were part of an at-the-money straddle write. That is, one investor wrote 22,000 Feb 16 puts on XLF at 52 cents and also sold 22,000 Feb 16 calls at 43 cents. It appears to be a new position in the fund at 95 cents per straddle. If so, the at-the-money straddle reflects expectations that shares will hold in a range around current levels through the February expiration and the options will lose value due to time decay. The risk to the short straddle is from a significant move higher or lower in the underlying shares, because both the puts and calls are sold uncovered or “naked”.
———————————————————————————————
Disclaimers
This article is provided for informational purposes only. No statement in this article should be construed as a recommendation to buy or sell a security or to provide investment advice. The content provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy and completeness. optionsXpress makes every effort to provide timely information to its recipients but cannot guarantee specific delivery times due to factors beyond our control.
Derivatives involve substantial risk and are not appropriate for all investors. Please read the “”Disclosure Statement for Futures and Options”” prior to investing in futures or options.
For investments using a straddle or strangle options strategy the potential loss is unlimited. Multi-leg option strategies are subject to multiple commissions. Profits may be eroded by the commission expended to open and close the positions and other risks apply.