Unusual Options Activity Review for Monday, March 4, 2013
Monday’s Bullish Trading
Hecla Mining (HL) was down 57 cents to $4.07 in active trading of 16.5 million shares on news the company is acquiring Aurizon (AZK) for $796 million (Canadian dollars). HL was down on the announcement and options on the stock saw a Hecla lot of activity. About 34,000 calls and 19,000 puts traded on the Coeur D’Alene, ID gold and silver mining company. The largest trade was an 8,678-contract block of June 5 calls for 13 cents per contract on the International Securities Exchange [ISE]. An investor bought the calls, to open, according to data from the all-electronic ISEE. More than 22,000 June 5 calls on Hecla traded on the day. Some investors were possibly taking positions in HL on the view that today’s drop in the stock was overdone. Rather than buying shares outright today, however, they appeared to be taking positions in options that give the right to buy (call) the stock for a fixed price (strike) for a predetermined period of time (expiration).
Bullish trading was also seen in Genworth (GNW), MGIC (MTG), and Seagate Tech (STX).
Monday’s Bearish Trading
Red Hat (RHT), the Raleigh, NC software-developer, was up 50 cents to $52.08 and options volume on the stock was 2.5X the daily average Monday. 9,320 puts and 415 calls traded on the stock. March 50 puts were the most active in the name. 7,230 contracts traded. Another 1,000 March 55 puts also changed hands. It’s not clear what was motivating the action, but implied volatility in RHT options was up 5.5 percent to 30. The company said today that it will announce earnings on March 27, but that lies outside of the Mar expiration. March 2013 equity options expire at the end of next week.
Bearish trading was also seen in William Sonoma (WSM), Suntech Power (STP), and ADT.
Index Recap
Overall volume totals were very light and implied volatility was lower across much of the index market Monday. 5.9 million calls and 5.7 million puts traded across the exchanges. Total volume, of 11.6 million, was well below the recent daily average of 15.7 million contracts. Meanwhile, in the index market, 473,000 calls and 698,000 puts traded on the S&P 500 (.SPX), CBOE Volatility Index (.VIX), and other cash indexes, which is also well below the norm. SPX added 7 points to 1,525.20 and VIX, which tracks the expected volatility of SPX options, dropped 1.35 to 14.01. VXAPL was an index that saw increasing activity, however. The index applies the VIX methodology to options on Apple Computer (AAPL) options. It was up 2.82 to 34.86 after Apple lost another $10.42 to $420.05 and finished the day near session lows.
Analyzing the ETF Market
Options on the SPDR Metals and Mining Fund (XME) were busy Monday. Shares dropped 54 cents to $39.91 and total volume in the ETF was about 35,000 puts and 5,475 calls. The top trades of the day were part of a spread, in which the investor apparently sold 10,000 March 40 puts on the ETF at $1.36 and bought 10,000 April 37 puts for 77 cents per contract. The March 40 ? April 37 put spread, for 59 cents, might roll a position out one month and down three strikes. That is, the investor had a position in the Mar 40s and the contract is now 9 cents in-the-money after a two-week 10 percent drop in XME. The contract is expiring at the end of next week. They are now covering that position, while opening a new block of puts in the Apr 37s. If so, the adjustment seems to express concerns about further losses for shares of leading metals and mining companies in the weeks ahead.
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