Unusual Options Activity Review for Wednesday, March 6, 2013
Wednesday’s Bullish Trading
Johnson Controls (JCI) hit a high of $34.45 Wednesday morning and finished up 82 cents to $32.63, new 52-week highs, on heavy volume of 30 million shares following reports that the Milwaukee, WI auto parts company was mulling the sale of its interior unit. Late in the day, Johnson Controls denied the report and said it was considering the sale of its electronics unit. Trading in the options on the stock was busy amid the mixed headlines. 23,000 calls and 15,000 puts traded in JCI. While more than 7,300 March 33 calls traded on the stock, making it the most active option in the name, March 32 and 33 puts on the stock were busy as well.
Bullish trading was also seen in Saks (SKS), Yahoo (YHOO), and MGM.
Wednesday’s Bearish Trading
Aeropostale (ARO) dropped 31 cents to $13.28 and options volume on the teen apparel retailer was 6X the daily average after peer American Eagle Outfitters (AEO) fell on earnings news. AEO was off $2.28 to $20.27 in the wake of the report. Meanwhile, ARO, which reports on March 14, moved lower as well. Options volume on the stock was 8,000 puts and 1,660 calls. March 13 puts, which are now 28 cents out-of-the-money and expiring at the end of next week, were the most active in ARO. 6,900 traded against 1,156 in open interest. Some investors were possibly opening protective put positions against stock on worries shares will come under pressure, like AEO, when Aeropostale reports earnings next Thursday ? the day before expiration Friday.
Bearish trading was also seen in Sony (SNE), Virgin Media (VMED), and JDS Uniphase (JDSU).
Index Recap
Overall, it was a quiet day in the equity and the options market Wednesday. The S&P 500 Index (.SPX) traded in a 7-point range and added 1.67 points to 1,541.46. Meanwhile, CBOE Volatility Index (.VIX), which tracks the expected or implied volatility of SPX options, ticked up .05 to 13.53. Yet, while the index saw relatively little movement on the day, trading in the VIX pit was very busy. 483,000 calls and 125,000 puts traded on the volatility index Wednesday. April 18 calls were the most active in the product. More than 101,000 contracts changed hands. April 17 and March 18 calls were the next most actives, as some investors are possibly taking interest in VIX upside calls to help hedge the risk of a possible uptick in volatility in the days/weeks ahead.
Analyzing the ETF Market
SPDR Retail Trust (XRT) saw more volume than usual. XRT, which is an exchange-traded fund that holds a basket of small and large retailer names, was down 24 cents to $68.44. Options volume was 5.5X the daily average. 106,000 puts and 42,000 calls traded on the ETF Wednesday. The top trades were part of a spread, in which the investor bought 20,000 April 68 puts on XRT and sold 40,000 April 64 puts, creating an advanced options play known as a 1X2 put ratio spread. The strategy is a bearish play, as the best profit happens if shares fall to $64 through the expiration. An investor with a large portfolio of retailing names might have initiated the spread to help hedge stock positions ahead of monthly same store sales results Thursday, jobs data Friday.
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