Unusual Options Activity Review for Tuesday, January 22, 2013
Tuesday’s Bullish Trading
Avon Products (AVP) is up 62 cents, or almost 4 percent, to $16.59 and options volume on the cosmetics company is running 4.5X the daily average. Roughly 43,000 calls and 1,600 puts traded on the stock so far. One spread trade drove much of the volume after, according to a source on the exchange floor, an investor sold 15,800 July 19 calls on the stock at 65 cents per contract and bought 19,600 March 17 calls for 72.5 cents. The activity in July 19 calls is possibly closing, because open interest is 16,128 and the largest block of OI in the name. Most were opened on January 9 for 75 cents per contract. Now, the investor appears to be covering in July and opening a new position in March 17 calls. If so, the adjustment seems to express confidence in the stock through the March expiration, which is in 52 days. AVP will report earnings on the morning of February 12.
Bullish trading was also seen in Dunkin Brands (DNKN), Anadarko Pete (APC), and Beazer Homes (BZH).
Tuesday’s Bearish Trading
US Bancorp (USB) is up 6 cents to $32.93 and options volume on the bank is 3.5X the daily average, with about 41,000 calls and 5,000 puts traded in the name so far. Two large blocks of calls drove most of the activity after, according to a source on the exchange floor, an investor sold 17,570 January 2014 $35 calls on USB at $1.29 and also sold 17,570 January 2014 37 calls at 72 cents per contact. Both blocks appear to be new positions because volume exceeds open interest. If so, it’s not necessarily bearish trading, but seems to reflect the opinion that USB will see limited upside through the rest of this year and into early-2014. A shareholder with a large position in USB might have initiated the call writes as part of a covered call or buy-write play on USB.
Bearish trading was also seen in Western Union (WU), Invensense (INVN), and James River Coal (JRCC).
Index Recap
CBOE Volatility Index (.VIX) hit a high of 13.32 Tuesday morning, but has given back most of the gains and is up .18 to 12.64. The market’s “fear gauge”, which tracks the expected or implied volatility of SPX options, has plummeted more than 10 points, or 44.4 percent, since December 28. The decline in the index comes as SPX continues a grind higher and continues to set a series of 5-year highs. Meanwhile, on the options front, options on VIX have seen brisk trading for several days. 446,000 calls and 316,000 puts so far Tuesday, which is more action than the S&P 500 Index itself. The thirteen most active options in the index market today are on the VIX, being led by the March 22 calls and April 17 puts.
Analyzing the ETF Market
Large blocks of options traded on the iShares Japan Fund (EWJ) Tuesday. Shares are drifting down 10 cents to $9.77 after the Bank of Japan concluded its latest policy meeting and, as was widely expected, kept a 2 percent inflation target and vowed additional asset purchases. On the options front, a hefty January 2015 $10 straddle was opened on EWJ after an investor sold 50,000 Jan 10 calls on the ETF at 92 cents and sold 50,000 Jan 10 puts at $1.26, both in the Jan 2015 term. The massive straddle write is not necessarily bullish or bearish, but seems to reflect expectations for limited movement for Japan’s equity markets over the next two years.
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