Monday’s Bullish Trading
EMC, the data storage device-maker, was down 28 cents to $27.58 on relatively light volume of 12.3 million shares. By way of comparison, average daily volume in EMC over the past month was more than 16 million. Yet, options on the stock were busy Monday. 43,000 calls and 22,000 puts traded. The top trades were part of a time spread or calendar spread, in which the investor bought 9,000 of the longer-dated January 2014 $35 calls on EMC for $1.43 and sold 9,000 of the January 35 calls at 11 cents. The Jan ? Jan14 $35 call spread, for $1.32, appears to be a new position, based on data from the International Securities Exchange. If so, the investor might believe that EMC will hold below $35 (+26.9%) through the January 2013 expiration, but then see a substantial rally that lifts the stock beyond $35 through mid-Jan 2014. The stock is up 28 percent so far in 2012.
Bullish trading was also seen in Pan American Silver (PAAS), Savient Pharmaceuticals (SVNT), and IAM Gold (IAG).
Monday’s Bearish Trading
General Mills (GIS) might be a name worth watching later this week. Shares of the food company didn’t do much Monday, adding just 7 cents to $38.96 on relatively light volume of 4 million shares. Yet, options volume was 3.5X the daily average. About 14,000 puts and 2,100 calls traded on General Mills. The flow was heavily concentrated in the Sep 38 puts, which traded 12,735 contracts against 1,693 in open interest. Players were apparently paying 9, 10 and 12 cents to open news position in the contract, perhaps on concerns about volatility in the shares when the company reports earnings on Wednesday. Sep 38 pus on GIS are now 2.5 percent OTM and expire at the end of the week, just two days after the company reports its results.
Bearish trading was also seen in Steel Dynamics (STLD), Carmax (KMX), and Ecolab (ECL).
Index Recap
What a difference one trading day can make! More than 27 million options traded across the exchanges Friday, according to the Options Clearing Corporation. Monday, it appears that about 13 million contracts traded, according to Trade Alert. The S&P 500 Index (.SPX) slipped 4.58 points to 1,461.19 and CBOE Volatility Index (.VIX), which tracks the expected volatility priced into SPX options, ticked up .08 to 14.59. About 497K calls and 592K puts traded on SPX, VIX and other cash index products and that’s a far cry from the 2.3 million contracts that traded in the index market Friday. Volume might pick up later this week; however, as expiration Friday is also the so-called Quadruple Witch ? a quarterly expiration that sees futures, single stock futures, futures options, and equity options all expiring.
Analyzing the ETF Market
Calls on the PowerShares Bullish Dollar Fund (UUP) were heavily traded for a second day and October 22 calls were again the most actives in the ETF. More than 381,000 contracts changed hands Friday. Open interest increased by more than 290,000 contracts and, at 305K, the October 22 call now has the most OI in the fund. Shares added 3 cents to $21.67 Monday and another 54,168 contracts changed hands. The contract is 1.5 percent out-of-the-money and expiring in 32 days. The heavy volume in the past two days seems to reflect expectations for dollar strength in the weeks ahead. UUP is a fund that tracks the performance of the buck against a basket of other currencies. However, it is heavily weighted towards the EUR/USD pair. JPY/USD is the second most influential pair within the fund.
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