Friday’s Bullish Trading
Pitney Bowe’s (PBI) might be a name worth watching next week. The company is due to report earnings on April 30 and hosts an Investor Day on May 3. The stock is rallying today, up 93 cents to $16 on increasing volume of 4.9 million shares. Meanwhile, options volume on the maker of mail processing equipment is 14X the daily average. 53,000 calls and 3,810 puts so far. The top trades are part of a ratio spread, in which the investor apparently sold 15,000 July 15 calls on the stock at $1.40 and bought 30,000 July 17 calls for 50 cents per contract. Looking at trade history of these two contracts, the 1X2 call ratio spread, at 40 cents, appears to be rolling up in strikes. That is, the investor held a position in the July 15s, which are now $1 in-the-money. The position is being closed (offset, covered, sold) and a new position is being bought in the July 17s. If so, the position adjustment seems to be expressing confidence in the stock heading into next week’s key events for PBI.
Bullish trading was also seen in Las Vegas Sands (LVS), Clearwire (CLWR), and Frontier Comm (FTR).
Friday’s Bearish Trading
Aeropostale (ARO) is off 23 cents to $13.84 and options volume on the stock is running 2.5X the daily average. 3,880 puts and 710 calls so far. Most of the flow is scattered across July 11, October 11, and October 10 puts. No immediate news on the stock to explain the increased activity, but 30-day implied volatility in the options on the apparel retailer is edging 2.5 percent higher to 42. Some investors are possibly initiating protective put positions in ARO ahead of the company’s May 23 earnings report.
Bearish trading was also seen in Cemex (CX), Cerner (CERN), and Atlas Pipeline (APL).
Index Recap
CBOE Volatility Index (.VIX) is up .18 to 13.80 amid slowing trading in the options market heading into the weekend. Recent options trades on VIX include a complex four-way spread, in which the investor apparently bought 10,000 May 17 calls on VIX for 79 cents and sold 20,000 May 22 calls at 32 cents. At the same time, 15,000 June 17 calls traded for $1.43 and 30,000 June 22 calls at 71 cents. In both cases, it appears that the 17 strike was bought and the 22 strike was sold, creating a 1X2 call ratio spread that offers its best payout if VIX is trading at $22 at the expiration. A portfolio manager might have initiated the positions as a type of hedging strategy. VIX tracks the expected or implied volatility priced into S&P 500 Index options and typically moves higher when the market moves lower.
Analyzing the ETF Market
Big trade surfaced in the iShares Europe, Far East and Australasia Fund (EFA) Friday. The ETF is up a penny to $61.05 and a June 57 ? July 58 put spread trades on EFA for 64 cents, 131,400X. In other words, 131,400 June 57 puts are sold at 47 cents and 131,400 July 58 puts bought for $1.11. Looking at the trade history of the two contracts, the activity in Jun 57 puts appears to close a position opened in mid-March, while the July 58s look opening. Taken together, the activity appears to be rolling of a bearish position out one month and up one strike, possibly to adjust a hedge against a portfolio of international stocks. EFA is notching multi-year highs this week.
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