Unusual Options Activity Review for Monday, December 3, 2012
Monday’s Bullish Trading
Cisco (CSCO) added 12 cents to $19.03 and was one of only seven Dow stocks to move higher Monday. 22 suffered losses and Alcoa (AA) finished unchanged. On the options front, Cisco December 20 calls were the day’s most actively traded options contract after more than 66,000 changed hands on the day. Two blocks of 20,000 (40,000 total) traded early in the day for 4 and 5 cents per contract. Open interest in CSCO Dec 20 calls is 39,785 and so Monday’s flow seems to include some opening activity. If so, it’s very short-term action. December equity options expire in 18 days and $20 calls on CSCO are almost $1, or 5.1 percent, out-of-the-money. Total options volume on the networking giant was 121,000 calls and 25,000 puts.
Bullish trading was also seen in AMD, Mittal Steel (MT), and Qihoo Technology (QIHU).
Monday’s Bearish Trading
Pitney Bowe’s (PBI), the Stamford, CT mail services company, added 45 cents to $11.64 and options volume on the stock was 6.5X the daily average. About 23,000 puts and 1,135 calls traded on PBI. Spread trading drove much of the activity. In morning action, an investor sold 5,000 January 12 puts on the stock at 85 cents and bought 5,000 Jul 6 puts for 15 cents per contract. The spread traded 10,000X on the day. Open interest in the January $12 puts on PBI is 25,500 and by far the largest in the name. The contract is in-the-money. Monday’s seller is possibly closing a position, but also rolling to a new similar block of deep out-of-the-money July 6 puts. If so, the activity seems to reflect a bearish view on the stock. $6 puts on PBI are $5.64, or nearly 50 percent OTM. A shareholder with a position in the stock is perhaps adjusting a protective put purchase or hedge.
Bearish trading was also seen in Leapfrog (LF), Devry (DV), and HMA.
Index Recap
Overall volumes in the index pits were very light again Monday, with only 236,000 calls and 408,000 puts traded in the S&P 500 Index (.SPX). SPX lost 6.72 points to 1,409.46. Meanwhile, CBOE Volatility Index (.VIX), which tracks the expected volatility priced into SPX options, gained .77 to 16.64. At the same time, 476,000 calls and 166,000 puts traded in the VIX pit ? nearly as much as the S&P 500 Index itself. A large block of 25,890 December 35 calls traded on the volatility index for a nickel. Open interest is more than 120,000 contracts. Since the contract is deep out-of-the-money and expiring in a little more than two weeks (VIX Dec 2012 options expire in 15 days), the hefty block of calls might close a position on a diminishing expectations for a major volatility spike in the weeks ahead. January 14 puts, January 25 calls, January 30 calls and December 15 puts were also among the most actives in VIX options Monday.
Analyzing the ETF Market
32,000 puts and 1,500 calls traded on the SPDR Homebuilder Trust (XHB). The fund, which represents ownership in shares of leading homebuilding names, lost 11 cents to $26.21 on light volume of 2.8 million shares. By way of comparison, typical volume in XHB is about 7.5 million. Meanwhile, the put activity was higher than normal and scattered across a variety of different contracts. December 23 puts, December 24 puts, December 25 puts, January 24 puts and January 25 puts were the most actives. It’s not clear what motivated the heightened put activity, as there are no housing reports due out this week. Jobs data will be in focus, with ADP releasing its private sector monthly report Wednesday, before jobless claims are released Thursday and the Labor Department’s key monthly payroll report Friday morning.
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