Unusual Options Activity Review for Monday, November 26, 2012
Monday’s Bullish Trading
EBAY added $2.39 to $51.40 in active trading of almost 18 million shares Monday after Reuters reported that Black Friday online sales jumped 26 percent this year. Amazon.com (AMZN) also saw relative strength, gaining $3.74 to $243.62. In options action, order flow in EBAY was very lop-sided. Roughly 46,000 calls and 16,000 puts traded on the online auctioneer. Nine of the ten most active options contracts on Ebay were calls, led by December 52.5 call options. More than 9,100 contracts changed hands. December 49, December 50 and January 50 calls ? which now in-the-money after the rally in the stock ? were among the most actives in EBAY as well. Some players might have been closing out positions in these ITM calls after shares rose to multi-year highs.
Bullish trading was also seen in Devry (DV), Abercrombie (ANF), and Hospira (HSP).
Monday’s Bearish Trading
The largest equity options trade Monday was in Bank of America (BAC). Shares dropped 7 cents to $9.84 and were among 22 Dow stocks to finish with losses. On the options front, the big trade of the day was a 40,000-contract block of January 10 calls at 41 cents per contract when the market was 41 to 42 cents. At the end of the day, 56,900 contracts traded. January 10 calls on BofA are now 1.6 percent out-of-the-money and expiring in 53 days. BAC Jan 10 call open interest, which is the number of contracts that have been initiated and not yet offset through a closing transaction, is 887,443 and currently the largest open interest in BofA options. Since Monday’s volume represents just 6.4 percent of open interest, it is possible that the activity is closing. That is, the investor might have bought the block of Jan $10 calls on the view BAC would trade to more than $10 through the January 2013 expiration, but liquidated it Monday on diminishing hopes for a substantial rally in the weeks ahead.
Bearish trading was also seen in Nokia (NOK), Alexia Pharmaceuticals (ALXA), and DirectTV (DTV).
Index Recap
CBOE Volatility Index (.VIX) added .36 points to 15.50 and options volume on the market’s “fear gauge” was 2X the daily average Monday, as 777,000 calls and 164,000 puts traded in the VIX pit. More than half of the call volume was due to one massive spread trade, in which the investor apparently sold 106,000 December 23 calls on VIX at 30 cents, bought 106,000 January 35 calls at 10 cents, bought 106,000 January 25 calls for 72 cents and sold 106,000 January 35 calls at 23 cents. In other words, the December 23 ? 25 call spread was sold and the January 25 ? 35 call spread was bought. Looking at the trade history, the action appears to roll a massive call spread from December to January. The investor was possibly looking for a spike in market volatility by mid-December, but is now pushing the time frame back one additional month.
Analyzing the ETF Market
SPDR Utility Fund (XLU) was up 43 cents to $34.52 and about 74,000 calls/4,500 puts traded on the exchange-traded fund. One of the top trades was a 17,000-contract block of December 35 calls for 23 cents per contract traded on the International Securities Exchange. An investor bought the calls, to open, according to ISE data. A separate 20,000-lot traded for 23 cents on CBOE. At the end of the day, more than 57,000 December 35 calls traded in XLU against 19,503 in open interest. The fund holds all of the utility names from the S&P 500. It’s not clear what motivated the activity in the upside calls on the ETF Monday. For whatever reason, some investors seem to be anticipating gains for the utilities between now and the December expiration ? which is in 25 days.
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