Friday’s Bullish Trading
Penn West Petroleum (PWE), a Calgary-based oil and gas drilling company, is seeing unusual options activity today. Shares started moving higher midday and closed up 19 cents to $10.12 in active trading of 4 million shares. Meanwhile, options volume on the stock is running 15X the daily average. Over 28,000 options traded today. More than 19,000 June 10 calls have traded on PWE against 663 in open interest. One investor bought 9,200 of those calls for 62.5 cents per contract, according to a source on the exchange floor. September and April 10 calls are the next most actives in the stock and implied volatility in PWE options is moving up 21.5 percent to 38. It’s not clear what motivated the relative strength in the stock or higher call activity, as there are no obvious headlines on the ticker today.
Bullish trading was also seen in Newfield Exploration (NFX), Toll Brothers (TOL) and International Game Technology (IGT).
Friday’s Bearish Trading
Southern Copper (SCCO) hit a low of $33.25 earlier today, but is now up about 6 percent off its worst levels. The stock closed up 59 cents to $35.54 after prices in the metals markets firmed in afternoon trading. Gold, silver and copper all trading closed off the day’s lows. Yet, options order flow in SCCO seems to reflect concerns about additional losses in shares of the copper miner. Total volume is 5X the daily average. 5,850 puts and 1,840 calls traded on the stock. April 36 puts are the most active. 3,900 traded. June 33 puts on the stock were busy Wednesday. 2,150 changed hands. SCCO has slumped 16.2 percent since 52-week highs were set in late-Jan. Some investors are possibly setting up protective put positions in the April and June contracts against shares on concerns about further losses in the mining company.
Bearish trading was also seen in Polycom (PLCM), Equity Residential (EQR), and Cemex (CX).
Index Recap
Options on the Mini-NASDAQ 100 Index (.MNX) were busy today. The index is designed to track the performance of the NASDAQ 100 Index (.NDX), divided by 10, closed down 2.31 to 277.18. On the options front, volume in MNX is 8X the daily average, being driven by April 260 ? 265 put spread trading. More than 19,000 traded on the day, mostly on the International Securities Exchange, and data from the all-electronic ISE indicate the spread is being sold-to-open. That is, the investor is selling the Apr 265 puts and buying the Apr 260 puts. They’re probably expecting MNX to hold above 265 (-4%) over the next two weeks and are writing the Apr 265 puts. They’re also buying the 260 puts to hedge that short position. The potential risk to a put credit spread is the difference between strike prices minus the credit received (plus transaction costs).
Analyzing the ETF Market
SPDR 500 Trust (SPY) Weekly (4/5) 155 calls are the day’s most actively traded options contract across the entire market Friday. More than 335,000 contracts have traded against 47,818 in open interest. SPY closed down $.70 to $155.16. Since the contract expires after today, it could soon be worthless if SPY dips back below $155. Still, some investors appear to be buying these calls to open new positions, possibly looking for a rally tomorrow. SPY is the exchange-traded fund designed to mirror the performance of the S&P 500 which closed down 6.70 to 1,553.28.
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