Tuesday’s Bullish Trading
IAM Gold (IAG) is seeing a lot of options activity lately. About 30,000 calls and 4,000 puts traded on the Canadian gold miner Friday. Monday, another 44,000 calls and 14,000 puts traded on the stock. And Tuesday, volume in IAG was 7.5X the daily average. 48,000 calls and 2,600 puts traded on the ticker. IAG added 24 cents to $15.83 in active trading of 5 million shares and January 2014 $30 calls saw the bulk of the action. More than 41,100 contracts traded against 32,834 in open interest. The activity is somewhat puzzling because there have been no headlines on the stock lately. In addition, the focus on $30 calls is also unusual because the option is really deep (89.5%) out-of-the-money.
Bullish trading was also seen in Key Bank (KEY), Harmony Gold (HMY), and Ascena Retail Group (ASNA).
Tuesday’s Bearish Trading
Starwood Hotels (HOT), a Stamford, CT hotel and leisure company, lost 71 cents to $58.78 and options volume on the stock was 4X the daily average, driven by a large three-way spread. In this advanced options strategy, the investor sold 6,000 November 67.5 calls on HOT at 56 cents per contract, bought 6,000 November 57.5 puts for $2.15, and sold 13,130 November 50 puts at 58 cents. In other words, upside 67.5 calls were sold on the stock to buy a downside 57.5 ? 50 put ratio spread. All three legs of the spread appear to be new positions and, if so, Tuesday’s spreader seems to view that HOT will turn cold by mid-November. Shares were trading at 52-week highs of more than $61 on Friday. A shareholder might have initiated this spread to help hedge a stock position.
Bearish trading was also seen in Carbo Ceramics (CRR), XL Capital (XL), and EMC.
Index Recap
VIX slipped amid quiet trading Tuesday. The S&P 500 Index (.SPX) lost 1.87 points to 1,459.32 and CBOE Volatility Index (.VIX), which tracks the expected volatility priced into SPX options, slid .41 to 14.18. While the index fell, trading was active in the VIX pit. About 294K calls and 246K puts traded on the volatility index. The volume, of more than a half million contracts, included active trading in Sep 14, 15 and 16 puts and calls on the index. Tuesday was the last day to trade the contracts before a settlement value is computed Wednesday morning.
Analyzing the ETF Market
iShares Japan Fund (EWJ) saw active trading Tuesday. Shares added a penny to $9.38 following a day of cautious trading on the Tokyo Stock Exchange ahead of a Bank of Japan policy announcement Wednesday. There are some expectations that officials will signal additional easing at the end of its two-day meeting. Trading in Japan’s equity markets might remain cautious in the days ahead on reports Japanese companies are closing business due to violent protests in China on the anniversary marking Japanese occupation of its giant neighbor. Trading in EWJ options was 6X the daily average, with 33,000 puts and 21,000 calls traded in the product. Sep 9 puts and Jan 10 calls both traded 20,000 contracts. Volume in EWJ Oct 9 puts was more than 10,000.
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