Unusual Options Activity Review for Friday, November 2, 2012
Friday’s Bullish Trading
Bank of America (BAC) continued to see a flurry of call activity. As noted in Thursday’s closing report, four of the five most active equity options contracts Thursday were call options on BofA. Shares edged up 17 cents to $9.91 Friday and were the best gainers in the Dow Jones Industrial Average. Another 628,000 calls and 174,000 puts traded on BofA? Friday. January 10 calls, which were just 9 cents out-of-the-money, were Friday’s most actively traded option after 250,000 contracts changed hands. One player bought a block of more than 44,000 contracts in the morning for 62 cents per contract on ISE, according to data from the exchange. It’s not clear what is motivating the heavy volume in the contract. Nov 10 calls were also busy, with nearly 50,000 traded on the day. BAC has performed well this week and was up nearly 9 percent in the past three days.
Bullish trading was also seen in Cisco (CSCO), Guess (GES), and Tennet Healthcare (THC).
Friday’s Bearish Trading
Hess Corp (HES), the New York-based oil and gas refiner, was trading up 21 cents to $52.86 on the heels of its latest earnings report. Shares had hit a high of $55.35 after results showed an 87 percent increase in third quarter profits. However, the stock was down 4.5 percent from its best levels and one player in the options market seemed to be anticipating further weakness in the stock. A 9200-lot of Jan 52.5 puts was bought on HES Friday for $2.35 per contract. 16,105 traded against 16,344 in open interest. November 50 puts were also seeing interest. 4,270 traded. Total volume in HES was about 26,000 puts and 3,850 calls.
Bearish trading was also seen in Visteon (VC), ASML, and Waste Management (WM).
Index Recap
Overall options volume was picking up in the index market. The S&P 500 (SPX) was near the 1,421 level heading into the weekend and ahead of next week’s Presidential elections. It has risen 47.7 percent since the last elections and the tumultuous month of trading seen in October 2008. Now, some players in the options market were possibly bracing for increased volatility in the weeks ahead. CBOE Volatility Index (.VIX), which tracks the expected or implied volatility priced into SPX options, was up .49 to 17.18. Total volume across all index products was about 583,000 calls and 491,000 puts. Eight of the ten most active index contracts Friday were calls on the volatility index. Specifically, VIX Dec 24, Mar 24, Nov 26, Feb 26, Nov 20, Nov 18, Jan 23 and Nov 22 calls were the day’s most active index contacts. Total volume in the VIX pit was very lopsided at 350,000 calls and 105,000 puts.
Analyzing the ETF Market
Call options on the SPDR Healthcare Fund (XLV) were busy Friday. Shares were down 13 cents to $40.23 and total options volume on the fund was about 61,000 calls/350 puts. One big block trade drove much of the volume after an investor bought 51,000 November 42 calls on XLV for 7 cents per contract. 54,800 traded and the activity will create the largest block of open interest in the name. The fund is one of nine sector funds that collectively hold all of the S&P 500 companies. XLV includes names like J&J, Pfizer and Merck. November 42 calls on the ETF were 4.4 percent out-of-the-money and expiring in two weeks. It’s not clear why an investor would open such a massive position in the contract. Perhaps they were expecting next week’s elections to bode well for the healthcare names and lift the group over the next 14 days.
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