Unusual Options Activity Review for Friday, February 15, 2013
Friday’s Bullish Trading
Archer Daniels Midland (ADM) was up $1.25 to $32.46 in active trading of 13.5 million shares on reports Warren Buffett’s Berkshire (BRK/A) has taken a stake in the Decauter, IL farm products company. Options volume in ADM was running 4X the daily average. 17,000 calls and 5,500 puts have traded on the stock. March 33 calls, which were now 1.7 percent out-of-the-money and expiring in four weeks, were the most active in ADM. Nearly 4,000 traded. June 35, March 34, June 38, and March 32 calls were busy as well and implied volatility in the options on the stock was up 13 percent to 20.5.
Bullish trading was also seen in Frontier Communications (FTR), Avago Tech (AVGO), and Saks (SKS).
Friday’s Bearish Trading
Smithfield Foods (SFD) was off 25 cents to $23.22 and put volume on the meat company was 13X the daily average Friday, as 5,250 puts and 245 calls traded on the ticker. March 22 puts were the most active. 2,900 traded, mostly in smaller lots. The top trade was 620 contracts for 45 cents per contract when the market was 40 to 45 cents. 2,831 contracts traded total against 441 in open interest. March 24 puts were the second most actives. 2,010 contracts changed hands. 30-day implied volatility in SFD options was up 13.5 percent to 36 and the increased activity comes ahead of a March 7 earnings report.
Bearish trading was also seen in Chimera Investment (CIM), Lamar Advertising (LAMR), and UBS.
Index Recap
CBOE Volatility Index (.VIX) touched five-year lows Friday. The market’s “fear gauge” dropped to 12.24 in the morning and fell below its January low of 12.29. VIX moved higher in afternoon action, but the rally fizzled and the index was down .07 to 12.59. The low readings from the index reflect the bullish underlying sentiment that has helped lift the S&P 500 to new 5-year highs this week. In addition, since VIX tracks the expected or implied volatility of S&P 500 options, it also reflects the relatively low levels of market volatility seen this week. The average daily move in the S&P 500 has been just 1.5 points over the past five days.
Analyzing the ETF Market
Dow Jones DIAMONDS (DIA) saw more activity than usual Friday. Shares are designed to track the performance of the Dow Jones Industrial Average divided by 100, but the relationship isn’t perfect. DIA lost 5 cents to $139.45 Friday after the Dow added 7 points to 13,981. In options trading, 57,000 calls and 26,000 puts traded on DIA. The top trade was a 25,000-contract block of March 141 calls for 64 cents per contract. It appears to be a new position because volume exceeds open interest. If bought, these calls would turn profitable if DIA is trading north of $141.64 (excluding transaction costs) at the expiration, which roughly represents a move to more than 14,164 in the Dow over the next four weeks.
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