Tuesday’s Bullish Trading
EMC, a Hopkinton, MA data storage device-maker, is down 13 cents to $22.36 in active trading of 17.5 million shares. Meanwhile, about 20,000 calls and 6,700 puts traded on the stock today. The top trade is a 7,500-lot of May 23 calls for 25 cents per contract on the all-electronic International Securities Exchange. An investor bought the calls, and is opening a new position, according to data from ISE. More than 10,700 May 23 calls now traded on EMC. Shares hit multi-year lows of $21.45 eight trading days ago and the company reported earnings on April 24. The stock is now 4 percent above its recent multi-year lows and the May 23 calls are 2.9 percent out-of-the-money, expiring in 17 days. Some investors possibly have a bullish view on the name after last week’s earnings, but rather than taking a position in shares outright today, they’re turning to options that give a right to buy (call) the stock for a set strike price (23) through an expiration date (May 18, 2013). A premium is paid for the contract and that premium (debit) is at risk if shares hold below the strike price and the position is left open through the expiration. At that point, the call option expires worthless. On the other hand, if shares climb above $23, the value of a call option with a $23 strike price at expiration is equal to the stock price minus the 23-strike.
Bullish trading was also seen in L Brands (LTD), Corinthian Colleges (COCO), and Western Union (WU).
Tuesday’s Bearish Trading
An usually large trade surfaced in Flotek Industries (FTK) today. Shares of the chemicals company are flat at $16.04 and an investor apparently bought 5,000 September 15 puts on the stock for $1.20 and sold 7,500 September 12.5 puts at 45 cents. Open interest in the Sep 15 puts is about 30,000 and, in the Sep 12.5s, a little more than 45,000. Most of that OI dates back to earlier this month when the same (2X3) ratio spread traded multiple times. That is, the investor was buying 2 Sep 15 puts on FTK and selling 3 Sep 12.5 puts. Today’s activity apparently adds to that open interest and, if so, seems to be expressing a bearish view on the stock through mid-September. The max profit from the spread happens if shares fall to $12.5 (or 22 percent). The debit paid for the spread is at risk if shares hold above $15 and the position is left open through the expiration and there is additional risk to the downside because not all of the short (12.5 puts) are covered by the long (15 puts).
Bearish trading was also seen in McMoran (MMR), AMD, and Pitney Bowes (PBI).
Index Recap
CBOE Volatility Index (.VIX) is ticking .03 points higher to 13.47 and options on the volatility index are busy today. About 314,000 calls and 83,000 puts traded in the VIX pit so far. May 16 calls are the most active, with 56,000 traded. May 15, 18 and 19 calls are also seeing interest. In fact, of the total option volume in the volatility index today, two-thirds (or 66.6%) is in the front-month May contracts that expire three weeks from tomorrow. Some portfolio managers are possibly taking positions in upside calls on VIX to help hedge volatility risk ahead of key events this week, including FOMC meeting Wednesday afternoon, ECB rate announcement Thursday and monthly jobs report Friday.
Analyzing the ETF Market
PowerShares QQQ (QQQ) is up 44 cents to $70.65 and notching multi-year highs Tuesday. On the option front, June 71 calls on the Qs are the day’s most actively traded options contract. More than 125,700 traded against 36,404 in open interest. Some investors are possibly taking positions on the view the QQQ will continue to set new 52-week highs. Others probably view the recent decline in volatility in QQQ options (try QQV Index) as an opportunity to buy premium. For instance, one investor bought the QQQ Jun 71 straddle 15,000X Tuesday. That is, they bought 15,000 June 71 puts and bought 15,000 June 71 calls on the ETF. If opening, the position is not a bullish or a bearish play, but seems to be reflecting expectations that QQQ will see increasing volatility in the weeks ahead. The exchange-traded fund holds the same names as the NASDAQ 100 Index (.NDX), which in turn holds the top 100 non-financial names from the NASDAQ Stock Market.
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