Thursday’s Bullish Trading
Talisman Energy (TLM) has seen higher options volumes this week. Average daily volume in TLM is about 3,800 contracts. Yet, 12,000 contracts traded on the Canadian energy company Monday. Volume Tuesday was 8,400 contracts. Another 11,000 contracts traded yesterday. Today, 42,000 options traded on Talisman Energy, driven by a hefty risk-reversal in the October 10 puts and 13 calls. In this options strategy, the investor sold 20,000 October 10 puts on TLM at an average of 46.5 cents per contact and bought 20,000 October 13 calls for an average of 61.5 cents. The investor is probably a willing buyer of the stock for $10 per share and is therefore writing puts at that strike price. At the same time, a position in October 13 calls is being opened to participate if shares rally beyond $13 through mid-October. The hefty trade in TLM comes ahead of the company’s May 1 earnings report.
Bullish trading was also seen in Avis (CAR), PetrosBras (PBR), and Alcatel Lucent (ALU).
Thursday’s Bearish Trading
Fusion-IO (FIO), a Salt Lake City, UT data storage company, saw a 17 percent spike today to $19.45 per share on the heels of the company’s latest earnings report. On the options front, a noteworthy options trade on the stock was a 26,000-contract block of September 24 calls, at $1 per contract. An investor sold the calls, according to a source on the exchange floor, and the position will create the largest block of open interest in FIO. If so, it’s not necessarily a bearish play, but seems to express the view that the stock will see limited upside through the September expiration. A large shareholder might have initiated the trade as part of a buy-write or covered call strategy on FIO.
Bearish trading was also seen in Chemtura (CHMT), C& J Energy (CJES), and Avon Products (AVP).
Index Recap
It was a slow day in the index market, as the S&P 500 Index (.SPX) marched higher and a lot of the investor focus is on profit reports. While it’s the busiest week for first quarter earnings reports, the economic calendar is light. Therefore, macro news seems to be taking a backseat to profit reports ? for now. The S&P 500 Index (.SPX) was up 6.37 points to 1,585.16 and CBOE Volatility Index (.VIX), which tracks the expected or implied volatility priced into SPX options, was up just .01 to 13.62. Meanwhile, 480,000 calls and 545,000 puts traded on VIX, SPX and other cash indexes which is only about two thirds the typical volume. VIX August 30 calls were the most active index contract of the day after more than 30,000 traded.
Analyzing the ETF Market
SPDR Retail Trust (XRT) was up $1.17 to $73.31, new record highs, and options flow on the ETF was lopsided. 37,000 puts and 2,800 calls traded on the ETF. The top trades were part of a spread, in which the investor apparently bought 5,000 May 72 puts on XRT for 73 cents and sold 10,000 May 69 puts at 22 cents each. The 1X2 put ratio spread, for 29 cents, looks like a new position because volume exceeds the existing open interest. If so, the position appears to be a bearish play on the retailer, or maybe a type of protective position against a stock portfolio, as the max payout from this advanced options strategy happens if shares fall to the lower strike through the expiration, or to $69 (-5.9%) over the next three weeks.
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