Wednesday’s Bullish Trading
Aetna (AET) might be a name worth watching Thursday. The health insurance company is due to report earnings before the opening bell and has seen two days of increased options action ahead of the report. On Monday, we noted in the midday report that AET saw increased interest in its November 45 call options early in the week. Shares gained 29 cents to $43.95 and the activity resumed Wednesday. About 37,000 calls and 6,500 puts traded on Aetna. November 45 calls were again the most actives. 16,600 contracts changed hands. December 45, December 49, December 48, and December 50 calls were the next most actives. It’s not clear what is motivating the high volume in November and December upside calls on AET. Maybe some investors are taking positions in anticipation of good news when the company reports results Thursday morning.
Bullish trading was also seen in Patterson Energy (PTEN), Cliffs Natural Resources (CLF), and Dow Chemical (DOW).
Wednesday’s Bearish Trading
Nuskin (NUS) shares sank intraday to a low of $40.02 and finished down $2.17 to $41.46 in active trading of 2.2 million shares, but with no obvious headlines to explain the volatility Wednesday. The stock was down and put volume picked up in the stock, with about 8,000 contracts traded. The flow included a 2,344 contract block of December 40 puts for $3.50 per contract and another 2,000 for $3.20. At the end of the day, 5,850 December 40 puts had traded in NUS and implied volatility rose 4 percent to 62. Some investors might have been rattled by the abrupt drop in the stock price and bought puts to help hedge the risk of further losses until the volatility subsides. The company is due to report earnings on October 30.
Bearish trading was also seen in Navistar (NAV), Qihoo Technologies (QHOO), and Time Warner Cable (TWC).
Index Recap
The S&P 500 Index (.SPX) lost 4.36 points to 1,408.75. The index is down in four of the past five days for a one week 3.6 percent losing skid. Yet, while the market is moving lower, the uptick in volatility doesn’t seem to have stirred up much bearish sentiment so far. In the index market Wednesday, for example, only 447,000 calls and 452,000 puts traded on SPX, CBOE Volatility Index (.VIX), and other cash products; which is 70 percent the daily average volume, according to Trade Alert data. VIX dipped .50 to 18.33. If bearish sentiment were truly on the rise, it seems that there would be greater demand for index put options and a subsequent move higher in the volatility index. VIX tracks the expected volatility priced into SPX index options and is sometimes called the market’s “fear gauge” because it spikes during times of panic on Wall Street.
Analyzing the ETF Market
While there were few signs of hedging activity in the index market Wednesday, options on the SPDR 500 Trust (SPY) saw large block trades, with one big investor possibly looking for the market to make another fall before the December expiration. SPY is an exchange-traded fund that holds the same stocks as the S&P 500 and finished the day down 40 cents to $141.02. In options action, a large five-way spread was initiated on the ETF after an investor sold 30,000 January 115 puts on SPY, 25,000 Jan 116 puts, and 5000 Jan 117 puts to buy 50,000 Dec 110 puts and 120,000 December 115 puts. $1 million was paid for the entire trade. Looking at trade history and open interest in the contracts, suggests a possible roll. That is, the investor was selling the Jan puts to close while opening a new hefty position in downside December puts on SPY.
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