Tuesday’s Bullish Trading
Melco Crown Entertainment (MPEL), a Macau-based casino-operator, slipped a penny to $23.01 per share Tuesday and options volume on the stock was 5.5X the daily average. 60,000 calls and 3,260 puts traded on MPEL today. Much of the activity was in the April 23 and May 24 calls and driven by one spread trade, after an investor sold 20,000 April 23 calls on MPEL at 80 cents per contract and bought 22,000 May 24 calls for 90 cents each. Looking at trade history and open interest in the two contracts, the activity in the May 24 calls appears to be a new position and the Apr 23s might close a block of calls opened on March 28 for $1 per contract. If so, the investor is rolling the position out one month and up 1 strike, apparently buying an additional month of time for the bullish trade on the Chinese casino company to play out.
Bullish trading was also seen in North American Palladium (PAL), HanesBrands (HBI), and Vodafone (VOD).
Tuesday’s Bearish Trading
Croc’s (CROX), the Niwot, CO footwear-maker, drops 7 cents to $14.74 and options on the stock was 3X the daily average. 5,650 puts and 245 calls traded on the stock. The focus was mostly on April puts. The 14 strike was the most active after 3000 traded for 14 cents per contract on the ISE. Data from the exchange is indicating an investor bought the puts, to open a position. April 15 puts are the second most active in CROX today. 2,260 changed hands. It’s not clear what was motivating the increased activity, as there were no obvious headlines on CROX to explain the heightened options activity. Some investors are possibly buying short-term protective puts in the stock for fear of further losses in the weeks ahead. The stock has lost 9.2 percent since mid-March. April options expire in 17 days.
Bearish trading was also seen in Hewlett Packard (HPQ), Star Scientific (STSI), and Life Technologies (LIFE).
Index Recap
Implied volatility was broadly lower across the options market and overall options volumes picked up a bit. For instance, CBOE Volatility Index (.VIX), which tracks the expected or implied volatility [IV] priced into S&P 500 options, was down .80 to 12.78 after the S&P 500 gained 8.08 points to 1,570.25 ? new record. In the options market, 427,000 calls and 154,000 puts traded on VIX; which is light volume, but much better than the very slow trading day Monday when 189,000 calls and 58,000 puts traded on the market’s “fear gauge”. July 21 calls, May 22 calls, and April 16 calls were the most active options in the VIX pit Tuesday.
Analyzing the ETF Market
SPDR 500 Trust (SPY) was up 77 cents to $156.82 today and new highs, but volume was light at 98 million shares and 1.9 million contracts. By way of comparison, average daily volume in the SPY over the past month is 116 million shares and 2.8 million options contracts. Today’s flow included 1.3 million puts and 550K calls. May 142 puts were the most active. 170K contracts traded, with one large put ratio spread driving much of the activity. In this advanced options strategy, the investor apparently bought 78,000 May 153 puts on SPY and sold 156,000 May 142 puts. The spread traded for 86 cents, 39000X, and 81 cents, 39000X. The position has a bearish payoff chart that will offer its best payout if shares fall to $142, or nearly 10 percent, through the May expiration. It’s likely that a portfolio manager initiated the hefty 1X2 spread on SPY as part of a short-term hedging strategy. The exchange-traded fund is designed to mirror the performance of the S&P 500.
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