Unusual Options Activity Review for Monday, December 10, 2012
Monday’s Bullish Trading
Alpha Natural Resources (ANR), a coal producer, jumped 81 cents to $9.10 on heavy volume of 27.9 million shares on reports a Westshore Terminal was shut due to an accident Friday. A bulk carrier destroyed a conveyer build used to move coal on the facility. The news seems to have triggered optimism that ANR will benefit from the lost supply. Options on the stock were very busy as well. 60,000 calls and 42,000 puts traded in the name, which is 4X the daily average. While January 9 calls, December 8 calls, and December 10 calls were busy, the January 7 put was the most active options contract in ANR Monday after more than 12,000 contracts traded.
Bullish trading was also seen in Molycorp (MCP), Southwest Energy (SWN), and Phillips 66 (PSX).
Monday’s Bearish Trading
Informatica (INFA), the Redwood City, CA software-developer, added 14 cents to $25.25 and options volume was 3.5X the daily average. Most of the activity was concentrated in December 25 puts on the stock and the largest trade was a buyer of 7,200 contracts for an average of 42.5 cents per contract, according to a source on the exchange floor. At the end of the day, 11,210 INFA December 25 puts had changed hands. Open interest is 22,526 and the largest block of OI in the name. So, Monday’s flow might close or exit existing positions on concerns the stock might fall below $25 through the December expiration, which is in 11 days.
Bearish trading was also seen in Diamond Foods (DMND), Tellabs (TLAB), and Juniper Networks (JNPR).
Index Recap
It was another day of very slow action in the index market Monday. The S&P 500 Index (SPX) traded in a six-point range and added .48 points to 1,418.55 on the day. CBOE Volatility Index (.VIX), which tracks the expected volatility of SPX options, was up .15 to 16.05. Roughly 529,000 calls and 538,000 puts traded on SPX, VIX and other cash indexes, which is only about 75 percent the average daily volume, according to Trade Alert data. There doesn’t seem to be much hedging activity taking place heading into yearend, as many institutional investors might be reluctant to buy portfolio protection (SPX puts) and run the risk of seeing significant time decay of positions during the seasonally slow period for financial markets in late-December. It will be interesting to see if and when index put buying picks up again, as increasing volumes and volatility could potentially return again in early-2013.
Analyzing the ETF Market
US Natural Gas Fund (UNG) lost 60 cents to $19.68 in active trading of more than 12 million shares after warm weather forecasts for December raised concern about a curb in demand for the commodity. Options on the ETF were busy Monday as well. About 39,000 calls and 21,000 puts traded in UNG. January 24 calls were the most actives. 10,647 traded against 6,176 in open interest. January 22 calls saw the second highest volume. 8,724 traded vs. 6,782 in open interest. Some investors possibly view the decline in UNG as an opportunity for bullish trades, but rather than buying the commodity or shares of the ETF, they’re paying premium to take positions in options that convey the right to buy (or call) the shares of the ETF through at a set price for a fixed expiration date. UNG is a fund that attempts to mirror the performance of natural gas prices through futures contracts.
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