Unusual Options Activity Review for Thursday, January 10, 2013
Thursday’s Bullish Trading
Decker Outdoor Group (DECK) has seen two days of increased call activity. As noted in the midday report Wednesday, January 37.5, January 40 and March 40 calls were actively traded on the stock. In afternoon action Thursday, a noteworthy trade on the footwear-maker was a 9500-contract block of March 45 calls for an average of 37.5 cents when the stock was trading for $36.72. An investor bought the calls, according to a source on the floor. Then, moments later, out of the blue, the stock saw a sudden spike to $37.36 on increasing volume. At the end of the day, 11,163 Mar 45 calls traded on the stock against 2,055 in open interest. Total volume in DECK was about 25,000 calls and 5,000 puts, but with no obvious headlines on DECK to explain the higher volumes or afternoon pop in the stock. Shares finished up 90 cents to $37.02.
Bullish trading was also seen in CBOE Holdings (CBOE), Delta Airlines (DAL), and CBS.
Thursday’s Bearish Trading
Nokia (NOK) shares rallied 70 cents to $4.45 on heavy volume after the company updated earnings guidance and said mobile phone sales were going well. Options volume on the Finnish device-maker was 5X the daily average, with about 203,000 puts and 173,000 calls traded in the name. Two of the top trades were part of a spread in which the investor was selling 10,000 January 4.5 puts on NOK and buying 10,000 April 4.5 puts, according to a source on the exchange floor. This Jan ? Apr 4.5 put spread, for 48 cents, traded multiple times Thursday and appears to be rolling activity. Open interest in Jan 4.5 puts on NOK is 95,157 and the contract is 5 cents in-the-money heading into next week’s expiration. Some investors were possibly closing out positions as the stock rallied, but taking new positions in April puts on the view Thursday’s rally will be short-lived. NOK shares dropped more than 4 percent Wednesday on worries about competitive pressures after Apple announced plans for a cheaper iPhone.
Bearish trading was also seen in Veeco Instruments (VECO), Molycorp (MCP), and Ann Taylor (ANN).
Index Recap
Some traders showed interest in short-term spread trades on the mini-NASDAQ 100 Index (.MNX) Thursday. MNX finished up 1.65 points to 274.42 after the NASDAQ 100 Index (.NDX) gained 16.53 points to 2,744.18. MNX is equal to 1/10th of the NASDAQ 100. On the options front, the focus was on the January 277.5 ? 282.5 call spread on the pint-sized index, which traded 14,400X. For instance, according to data from the exchange, an investor sold 7,918 Jan 277.5 calls on MNX at 29 cents and bought 7,918 Jan 282.5 calls for 4 cents. The spread, at 25 cents, is opening because there not much open interest in the contracts. They’re basically selling the 277.5 calls on the view that MNX will remain below 277.5 through the end of next week (2775.0 for NDX), but hedging that position by purchasing the 282.5 calls. Still, the risks to the trade (relative to the credit collected) are high because the spread could potentially widen to $5, if NDX rallies to 2825.0 or more before the contracts expire.
Analyzing the ETF Market
An impressive put butterfly spread involving 200,000 contracts traded on the iShares Small Cap Fund (IWM) Thursday. Shares were up 20 cents to $87.47 to 52-week highs and one investor did the following: bought 50,000 March 85 puts on IWM for $1.86 per contract, sold 100,000 March 80 puts at 78 cents each, and bought 50,000 March 75 puts for 32 cents. This massive Mar 75 ? 80 ? 85 put butterfly spread, for 62 cents, is possibly a short-term hedge. That is, the spread was initiated against a portfolio of small cap stocks and will help offset losses if the Russell 2000 Small Cap Index falls over the next two months. The best payoff from the spread happens if IWM shares fall to $80 through the expiration, which represents an 8.5 percent decline over the next 63 days.
———————————————————————————-
Disclaimers
This article is provided for informational purposes only. No statement in this article should be construed as a recommendation to buy or sell a security or to provide investment advice. The content provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy and completeness. optionsXpress makes every effort to provide timely information to its recipients but cannot guarantee specific delivery times due to factors beyond our control.
Derivatives involve substantial risk and are not appropriate for all investors. Please read the “”Disclosure Statement for Futures and Options”” prior to investing in futures or options.
For investments using a straddle or strangle options strategy the potential loss is unlimited. Multi-leg option strategies are subject to multiple commissions. Profits may be eroded by the commission expended to open and close the positions and other risks apply.