Tuesday’s Bullish Trading
Caterpillar (CAT) sees bullish trading for a second day. 52,000 calls and 17,000 puts traded on the stock Monday, led by an opening buyer of 15,000 May 80 calls on CAT for 50 cents per contract. Shares are up another $1.72 to $89.31 and the best percentage gainers in the Dow Jones Industrial Average. The biggest options trades on the stock are again in the May term, as an investor sold 18,750 May 85 puts on CAT at 22 cents and bought 18,750 May 90 calls for 96 cents. The May 85-90 bullish “risk-reversal” has traded more than 20,500X and appears to reflect a bullish short-term view on the stock. May options expire at the end of next week. By writing the 85 puts, the investor is stating that they are a willing buyer of the stock at that price through the expiration (100 shares per each put option if assigned) and they are also buying upside calls to participate if shares rally in the days ahead. Caterpillar is scheduled to present at a Wells Fargo construction conference tomorrow. The company reported earnings on Apr 22.
Bullish trading was also seen in Level3 (LVLT), Dollar General (DG), and Teekay Corp (TK).
Tuesday’s Bearish Trading
Gilead Sciences (GILD) is up $1.26 to $53.17 and puts on the stock are seeing interest again today. Friday, a noteworthy block of 50,000 August 50 puts was opened on GILD for 6 cents per contract. Today, options volume is 2X the daily average, with 47,000 puts and 15,000 calls traded on the stock so far. The top trade is a spread in the longer-dated January 2015s. An investor bought 14,000 Jan 47.5 puts on the stock for $5.60 and sold 14,000 Jan 37.5 puts at $2.22, according to a source on the exchange floor. The Jan 37.5 ? 47.5 put spread, for $3.38, was being bought, according to a source on the exchange floor and, if so, seems to be expressing concerns that the stock could see a dramatic fall by early-2015. GILD is down today, but has surged nearly 48 percent year-to-date. The put spread might be a type of protective positions or hedge against stock.
Bearish trading was also seen in Dendreon (DNDN), RR Donnelly (RRD), and Genco Shipping (GNK).
Index Recap
Overall volumes remain light Tuesday, including in the index market. About 537,000 calls and 563,000 puts have traded on the S&P 500 Index (.SPX), CBOE Volatility Index (.VIX), and other cash indexes, which is less than 90 percent the normal volume, according to Trade Alert data. The S&P 500 continues its climb to new highs and is up 7.5 points to 1,625. In options action, 342,000 calls and 360,000 puts traded on the S&P. May 1630 and June 1660 calls are the most actives. Meanwhile, VIX, which tracks the expected or implied volatility priced into S&P 500 options, is ticking up .13 to 12.79. 151,000 calls and 146,000 puts traded in the VIX pit. May 13 and May 14 puts were the most actives.
Analyzing the ETF Market
Market Vectors Gold Mining Fund (GDX) saw a day of brisk trading. Shares are down 96 cents to $28.77, as the mining sector seems to be feeling the weight of falling gold prices Tuesday. The yellow metal is down $20.5 to $1,447.50. On the options front, 73,000 puts and 38,000 calls traded on GDX. As noted in the midday report, June 27 puts on the ETF saw active trading this morning. Later, a substantial trade printed when an investor apparently sold 10,000 Jun 27 puts on GDX at 81 cents and bought 10,000 Jun 32 calls for 49 cents each. With shares roughly midway between the two strike prices, an investor might have initiated this bullish “risk-reversal” on the view that the recent decline in the sector is overdone and GDX is due to bounce. Shares are down almost 38 percent year-to-date.
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