Wednesday’s Bullish Trading
Electronic Arts (EA) saw an afternoon spike and finished up 18 cents to $13.99 in heavy trading of 9.4 million shares after the company presented at Apple’s iPhone 5 event and demoed EA’s new racing game. (AAPL shares saw volatile trading and finished up $9.20 to $669.79 after unveiling the details of its latest phone and offering stats on sales of existing products.) In Electronic Arts options action, 9,450 calls and 1,950 puts traded on the stock. Much of the volume surfaced in the afternoon session when the company was presenting at the Apple event. September 14 calls, which are now at-the-money and expiring in 9 days, were the most actives. 4,550 contracts traded. Another 2,050 of the September 15 calls on EA changed hands Wednesday.
Bullish trading was also seen in Southwest Energy (SWN), MGIC (MTG), and (Radian RDN).
Wednesday’s Bearish Trading
Verizon (VZ) shares were up 65 cents to $44.89 and the best gainers in the Dow Jones Industrial Average after the company offered an update at a Bank of America/Merrill Media and Communications conference. The stock was moving northward and options volume was 2.5X the daily average. 38,000 calls and 55,000 puts traded on Verizon Wednesday. November 44 puts saw the most volume. More than 28,000 contracts traded. Most of the activity surfaced midday and it appears that one or more investors were building a position in the contract. 1,500 traded for $1.29 per contract when the market was $1.26 to $1.29, another 1,000 traded for $1.27 when the market was $1.25 to $1.27, 658 more traded for $1.21 when the bid-ask was $1.19 to $1.21, and so on. It’s not clear what was motivating the action, because the stock was heading higher and there doesn’t appear to be any bearish headlines on the ticker today. VZ is on a five-month 22 percent run higher. Some shareholders are possibly buying $44 puts on the stock to help hedge the gains.
Bearish trading was also seen in Arch Coal (ACI), Nationstar Mortgage (NSM), and Royal Bank of Canada (RY).
Index Recap
Trading slowed a bit in the index market after reaching high levels Tuesday, but trading remained active Wednesday. More than 2.1 million contracts traded on the S&P 500 Index (.SPX), CBOE Volatility Index (.VIX) and other cash indexes Tuesday. The activity was led by a record one-day volume of 1.22 million contracts in the VIX pit. 740,000 calls and 582,000 puts traded in the index market Wednesday. The S&P 500 added 3 points to 1,436.56 and VIX, which tracks the expected volatility priced into SPX options, gave back .61 to 15.80. 390,000 calls and 156,000 puts traded on the volatility index today. VIX October 30, November 28, and February (yikes) 55 calls were the most actives.
Analyzing the ETF Market
SPDR Homebuilder ETF (XHB) added 48 cents to $24.87 and is setting new 52-week highs after rallying 18.3 percent since July. Options volume on the ETF, which represents ownership in a basket of homebuilding names, was 2X the daily average. 17,000 puts and 3,450 calls traded in XHB Wednesday. The flow was heavily concentrated in January 20 puts. 14,000 traded, mostly in smaller sizes. The top trade was a 2000-lot for 45 cents per contract when the market was 42 to 45 cents. Open interest in the XHB Jan 20 puts, which are almost 20 percent out-of-the-money and expiring in 128 days, is 18,900 contracts. So, the flow might be closing. That is, the investor is buying back a short put position after the big gains seen in XHB lately.
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