Unusual Options Activity Review for Wednesday, January 2, 2012
Wednesday’s Bullish Trading
Family Dollar Stores (FDO) might be a name worth watching Thursday morning. The retailer is one of the few companies to report earnings this week. The stock was up 63 cents to $64.04 and options volume was 9.5X the daily average today ahead of the news. 8,790 calls and 2,740 puts traded on FDO Wednesday. The flow was heavily concentrated in January 65 calls, which are now 96 cents out-of-the-money and expiring in 16 days. More than 6,600 traded against 630 in open interest. The largest trade was a 4700-lot for $1.40 when the market was $1.30 to $1.45. Shares were up 4 percent on 10/3 when the company last released its results. Some investors were possibly taking positions in short-term upside calls on FDO today on hopes for another run higher when the company reports Thursday morning.
Bullish trading was also seen in Hewlett Packard (HPQ), Western Digital (WDC), and Smithfield Foods (SFD).
Wednesday’s Bearish Trading
Pulte Group (PHM) was up 44 cents to $18.60 Wednesday in active trading of 9.4 million shares. The stock is setting new 52-week highs after an impressive seven-month 147 percent surge. In options action, 13,000 puts and 5,700 calls traded on the homebuilder. The largest trade was a 9,800-contract block of April 18 puts on PHM for $1.54 per contract when the market was $1.51 to $1.54. At the end of the day, 10,338 contracts traded against 2,856 in open interest. A shareholder with a large position in PHM might have been taking positions in downside puts to help protect or hedge recent gains in the shares.
Bearish trading was also seen in Wellcare Health Plans (WCG), Aflac (AFL), and Freescale Semiconductor (FSL).
Index Recap
CBOE Volatility Index (.VIX) has seen an impressive two-day drop. The market’s “fear gauge”, which tracks the expected or implied volatility priced into S&P 500 Index options, lost another 3.34 points to 14.68. The index has suffered a two-day 35.4 percent drop after moving to six-month highs Friday. Meanwhile, options on the index have seen brisk trading this week as well. 492,000 calls and 453,000 puts traded in the VIX pit Wednesday. January 16 puts were the most actives. 72,640 changed hands. February 16 and January 15 puts were the next most actives in VIX.
Analyzing the ETF Market
Dow Jones DIAMONDS (DIA) saw more volume than usual. Shares, which are designed to track the Dow Jones Industrial Average (divided by 100), rallied $3.19 to $133.77. Overall options volumes were double the usual. 61,000 puts and 38,000 calls traded in DIA on the day. More than 12,000 of the January 127 and January 129 puts traded, driven by spread trading. For example, this Jan 127-129 put spread at 16 cents, 1000X on ISE. Data from the exchange indicate the investor was selling to close the 127s and buying to open the 129s. That is, they were possibly rolling a position up two strikes on the heels of today’s rally and, by doing so, maintaining a bearish position on the Dow through the January expiration ? which is in just 16 days.
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