Unusual Options Activity Review for Monday, December 31, 2012
Monday’s Bullish Trading
Citigroup (C) is up 27 cents to $39.28 and trading in the options on the bank is busy Monday. Roughly 99,000 calls and 34,000 puts traded on the banking giant so far. The top trades of the day are part of a spread, in which the investor apparently sold 30,000 June 42 calls at $2.38 per contract and bought 30,000 January 50 calls (expiring 2014) for $2.01. The spread, at 37 cent credit, is possibly a bet that shares will hold below $42 through mid-June of 2013 and then rally in the second half of the year. Looking at trade history, the spread might also be a roll. That is, the investor is closing out a position in June 42 calls opened on September 28 when 60,000 contracts were bought for $1.15 each. The stock is up roughly 20 percent since that time and, while half of the June 42 calls are being liquidated, a new position is possibly being opened in the January 2014 calls at the $50 strike.
Bullish trading was also seen in AT&T (T), Verizon (VZ), and Watson Pharmaceuticals (WPI).
Monday’s Bearish Trading
Marvell Technology (MRVL) is up 3 cents to $7.20 and trying to find some stability after losing 15.5 percent last week on news of a jury verdict against the chipmaker and other defendants, and in favor of Carnegie Mellon. Options on the stock continue to see active trading. Another 19,000 calls and 3,085 puts so far. The top trades are part of a spread, in which the investor apparently sold 3,128 May 8 calls on MRVL at 55 cents and bought 3,128 May 11 calls for 12 cents. The May 8 ? 11 call spread, at 33 cents, is possibly a liquidating trade and/or maybe expresses the view that shares are unlikely to recapture more than $8 by the May 2013 expiration. May 6 and 9 calls are among the most actives in Marvell today as well.
Bearish trading was also seen in Ross Stores (ROST), Dynavax Tech (DVAX), and Assured Guaranty (AGO).
Index Recap
CBOE Volatility Index (.VIX) drops 3.2 points to 19.57 after rallying 16.7 percent and to six-month highs Friday. The market’s “fear gauge” has now erased the entire gain seen Friday and is possibly dropping on hopes for an agreement in fiscal cliff negotiations. At the same time, VIX is coming off the upper end of the 2012 range, which was 13.45 to 26.66. Friday’s high was 23.23. Trading in the VIX pit is active, as players react to the rather big moves in the index. 363,000 calls and 243,000 puts so far. January 16 puts and January 20 calls are the most actives in VIX trading. In fact, of the total volume, nearly 80 percent of the activity is in the January term options ? which expire in 15 days.
Analyzing the ETF Market
SPDR 500 Trust (SPY), the exchange-traded fund designed to mirror the S&P 500 Index (.SPX), is up $1.28 to $141.31 in active trading of 147 million shares. Options on the fund are busy today as well. About 1.8 million puts and 1 million calls. Interestingly, the Weekly 121 puts, which are now 14.4 percent out-of-the-money and expiring at the end of this week, are the most actives. 164,000 contracts traded against just 2,034 contracts in open interest. Some investors are apparently paying 4 cents per contract to open new positions. It’s not clear what is motivating the activity, perhaps they’re buying the deep out-of-the-money puts to hedge the risk that of a substantial stock market drop is fiscal cliff talks between Obama and top lawmakers fall apart.
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