Monday’s Bullish Trading
Zynga (ZNGA) options saw a flurry of activity Monday. Shares of the San Francisco, CA social media company were up 36 cents, or 10.1 percent, to $3.93 in active trading of 90 million shares on a Bloomberg story that the company might be considered a takeover candidate by Yahoo (YHOO). The stock was up sharply on the day and options volume in Zynga included roughly 97,000 calls and 18,000 puts. March 4 calls, which are now 7 cents out-of-the-money and expiring at the end of the week, were the most active in ZNGA. 24,720 contracts traded. March 5, April 4, April 3.5, and April 4.5 calls were the next most actives and 30-day implied volatility in the options on the stock was up 25.5 percent and elevated at 82.5.
Bullish trading was also seen in Halozyme Therapeutics (HALO), Ford Motor (F), and Starwood Hotels (HOT).
Monday’s Bearish Trading
A sizeable spread traded in retailer TJX today. The stock was down 12 cents to $44.79 and options volume was 11X the daily average. 60,000 calls and only 200 puts traded in the name. Most of the activity was due to one spread, in which the investor bought 30,000 March 45 calls on TJX for 30 cents per contract and sold 30,000 April 45 calls at 90 cents per contract. Looking at trade history, this March ? April 45 call spread, at 60 cents, appears to roll a position in March 45 calls opened on 2/15 at $1.05 per contract. That is, the investor had previously sold March 45 calls to open a position and is now covering (buying-to-close) ahead of this week’s expiration. They’re now selling-to-open a new massive block of April 45 calls. If so, the position adjustment seems to reflect expectations for limited upside in TJX for the weeks ahead ? possibly part of a covered call strategy against a stock position.
Bearish trading was also seen in AT&T (T), Deutsche Bank (DB), and EZChip Technology (EZCH).
Index Recap
Implied volatility was broadly lower across the options market Monday and key indexes tumbled to new multi-year lows. CBOE Volatility Index (.VIX), for instance, dropped to its lowest levels since April 2007. The index, which tracks the expected or implied volatility priced into S&P 500 Index (.SPX) options, dropped 1.03 points to 11.56. Meanwhile, VXD ? which tracks the IV for options on the Dow Jones Industrial Index ? tumbled 8.3 percent to 10.68 and the NASDAQ Volatility Index (.VXN) sank 9.6 percent to 12.41. The big decline in the volatility indexes today was impressive and also comes ahead of an options expiration later this week!
Analyzing the ETF Market
An impressive trade printed in the iShares China Fund (FXI) Monday. Shares lost 45 cents to $38.63 on poor factory output and consumer spending data from China. In options action, an interesting trade in FXI late in the day was a 100,000-contract block of April 38.5 puts for 96 cents per contract. The massive premium, totaling $9.6 million, was a buyer, according to a source on the exchange floor, and an opening positioning. 112,974 FXI April 38.5 puts traded on the day, as one or more investors might have been buying downside puts on FXI to hedge portfolios of Chinese-related names.
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