Unusual Options Activity Review for Thursday, January 24, 2013
Thursday’s Bullish Trading
An impressive spread trades in Dow Chemical (DOW) midday Thursday. Shares were up 35 cents to $34.43 and one investor bought a January 2014 40 ? 45 call spread on the chemicals company for 61 cents, 44700X. That is, according to a source on the exchange floor, they bought 44,700 January $40 calls for 76 cents and sold 44,700 January 45 calls at 15 cents (both in the January 2014 options). The position appears to be opening and will create the largest blocks of open interest in DOW. If so, it’s a bullish play that seems to be targeting a substantial move higher in shares through early-2014. The stock has performed well lately, rallying more than 25 percent off the 52-week lows seen in mid-November.
Bullish trading was also seen in Dendreon (DNDN), Decker Outdoor (DECK), and iStar Financial (SFI).
Thursday’s Bearish Trading
Affymax (AFFY), a Palo Alto, CA biotechnology company, dropped 27 cents to $19.49 on relatively light volume of less than 500,000 shares. Yet, options volume was 6.5X the daily average. Roughly 4,000 puts and 270 calls traded in the name. Much of the volume was in one transaction after a 1,500-lot of February 16 puts traded on the stock for 30 cents per contract when the market was 20 to 30 cents. At the end of the day, 3,524 Feb 16 puts traded on AFFY against zero in open interest. The stock is on a six-day 9.6 percent losing skid and some investors are possibly buying Feb 16 puts on the stock for fear of further losses in the weeks ahead.
Bearish trading was also seen in Paychex (PAYX), Wesco International (WCC), and Manitowac (MTW).
Index Recap
It was a busy day in the options market Thursday. Projected volume was almost 21 million contracts and the second highest so far this year behind the high volume seen around the January expiration. The increased activity was seen across equity, exchange-traded funds, and index options. In the index market, for example, 1.2 million calls and 1 million puts traded on the CBOE Volatility Index (.VIX), S&P 500 Index (.SPX) and other cash indexes. The S&P 500 finished up .01 to 1,492.82 and VIX, which tracks the expected or implied volatility priced into SPX options, was up .23 to 12.69. VIX February 16 calls were the most actively traded index contract of the day after more than 128,000 contracts changed hands.
Analyzing the ETF Market
iShares Brazil Fund (EWZ) dropped 14 cents to $56.70 and a May 53 ? 55 call spread traded on the ETF at $1.65, 40000X. According to a source on the floor, the investor sold 40,000 May 53 calls on EWZ at $4.30 and bought 40,000 May 55 calls for $2.65. Looking at trade history of the two contracts, the activity appears to close a spread opened for 79 cents, 40000X, on 11/19. Shares are up 9.6 percent since that time and both legs of the spread are in-the-money. If shares hold above $55 through the expiration, both contracts will remain in-the-money and the spread will widen to $2. However, by offsetting the position Thursday, the strategist appears to be stating that they’d rather book the profit now, rather than run the risk of seeing shares drop back below $55 over the next 7 weeks.
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