Unusual Options Activity Review for Monday, January 7, 2012
Monday’s Bullish Trading
Options on Las Vegas Sands (LVS) were busy Monday. The stock was down with the broader market and lost 31 cents to $50.88 in relatively active trading of 8.2 million shares. Meanwhile, 66,000 calls and 14,000 puts traded in Las Vegas Sands options. The top trades were part of a spread, in which 13,290 March 47.25 calls were sold on the stock at $5.50 per contract and 26,600 March 52.25 calls were bought for $2.67, according to a source on the exchange floor. The activity in the higher strike calls appears to be opening and the block of in-the-money Mar 47.25 calls possibly closes (open interest is sufficient to cover). If so, the investor is possibly rolling a position up in strike prices after the stock’s recent 13.8 percent run higher off late-December lows. That is, they’re selling to close the March 47.25 calls and buying to open in the March 52.25 calls. If so, the position adjustment seems to be expressing confidence in the stock for the months ahead. The unusual strike prices ending with .25 are due to a contract adjustment as a result of a cash distribution paid by LVS.
Bullish trading was also seen in Skyworks Solutions (SWKS), Kodiak Oil and Gas (KOG), and Vodafone (VOD).
Monday’s Bearish Trading
Lorillard (LO), the Greensboro, NC cigarette company, dropped $2.23 to $115.64 in active trading of 1.3 million shares and options volume on the stock was 6.5X the daily average. 8,455 puts and 630 calls traded on LO Monday. The flow was scattered across a number of different contracts. February 105 puts, February 115 puts and Weekly (expiring 1/11) 115 puts were the most actives. Meanwhile, 30-day implied volatility in the options on LO was up 6 percent to 21. It’s not what motivated the increased activity, as there were no obvious headlines on the stock. Some investors are possibly taking positions in downside puts to help hedge the risk of further losses in Lorillard. The stock is on a three-day 4.2 percent losing skid.
Bearish trading was also seen in CREE, Cheniere Energy (LNG), and Corinthian Colleges (COCO).
Index Recap
Dow Jones Industrial Index (.DJX) lost .51 to 133.84 after the Dow Jones Industrial Average gave up 51 points Monday. DJX is a cash index designed to equal 1/100th of the Dow. In options action, volume in DJX was 3X the daily average Monday and driven by a three-way spread. 3,250 December 125 puts, 6,500 December 110 puts, and 3,250 December 95 puts traded on DJX Monday. Looking at the position sizes, the spread appears to be part of an advanced options play called a butterfly spread. If bought (buying the 125 and 95 strikes for the wings and selling 110s for the body) the spread is a bearish play targeting a move to 110 by the end of next year, which represents a drop to 11,000 for the Dow Jones Industrial Average.
Analyzing the ETF Market
SPDR Homebuilders Fund (XHB) dropped 19 cents to $27.42 and a Mar 24 ? 27 put spread trades on the ETF for an average of 69.5 cents, 10000X. According to a source on the floor, the investor bought 10,000 March 27 puts on XHB for 94.5 cents and 10,000 March 24 puts were sold at 25 cents. If opening, the spread would represent a bearish play on the homebuilders with a max payout if shares fall to $24 or below through the expiration. Shares had a stellar year in 2012 and XHB was notching new 52-week highs as recently as yesterday. The put spread might be a hedge or perhaps an outright bearish trade on concerns about a pullback in the sector over the next few weeks/months.
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