Unusual Options Activity Review for Tuesday, February 5, 2013
Tuesday’s Bullish Trading
Sprint (S) is down 3 cents to $5.71 and options order flow on the number 3 US phone company is lopsided Tuesday ahead of its earnings report that is due out Thursday. About 46,000 calls and 1,300 puts traded on the stock. Much of the activity happened in one transaction after 40,000 April 6 calls traded on the stock for 10 cents per contract. It’s not clear whether a buyer or seller initiated the trade. The market was 9 to 11 cents at the time. Open interest in Sprint’s April 6 calls is 16,791 and so the block of 40K calls appears to be a new position. Sprint has recently agreed to sell a 70 percent stake in the company to Japan’s Softbank. Reuters was reporting Tuesday that the company had held talks with at least four other companies before inking the deal. An investor might have bought the April 6 calls on hopes the February 7 earnings report and/or additional news on the Softbank front might lift the stock beyond $6 per share by the April expiration.
Bullish trading was also seen in Zynga (ZNGA), Virgin Media (VMED), and Electronic Arts (EA).
Tuesday’s Bearish Trading
55,000 puts and 1,635 calls traded on Pitney Bowe’s (PBI) Tuesday. Shares are up a dime to $13.44 and one hefty spread trade drove much of the activity after one investor sold 31,330 April 8 puts on the stock at a nickel and bought 15,665 July 8 puts for 25 cents per contract. Open interest in the April 8 puts on PBI is 41,773 and the largest in the name. So, the put selling might cover an existing position, while opening a new position in the July 8 puts. PBI rallied 20 percent on January 31 after reporting earnings and has jumped 30 percent from the 52-week lows seen in late-December. Tuesday’s position adjustment in the deep out-of-the-money puts on the stock might reflect concerns that the recent rebound won’t last and PBI will be trading at significantly lower levels by mid-April.
Bearish trading was also seen in SINA, Sandridge Energy (SD), and Alcatel Lucent (ALU).
Index Recap
Overall options volumes were light Tuesday and volatility eased a bit. Total volume was roughly 14.5 million contracts and below the recent daily average of 15.5 million. In the index market, about 530,000 calls and 365,000 puts have traded on the S&P 500 Index (.SPX), CBOE Volatility Index (.VIX), and other cash indexes, which is only about 65 percent of the recent daily average volume, according to Trade Alert data. The S&P added 15.58 points to 1,511.29 and recouped much of the 17.46 point loss from Monday. VIX, meanwhile, fell .94 to 13.73 after moving up 1.77 points Monday. Volumes in the VIX pit were very light and half the recent daily average. 254,000 calls and 80,000 puts traded on the market’s “fear gauge”.
Analyzing the ETF Market
SPDR Financial Fund (XLF) saw a day of very heavy options action Tuesday. Shares ticked 17 cents higher to $17.58 and options volume was 3X the daily average. More than a half million contracts traded on XLF, including 467,000 puts and 48,000 calls ? a ratio of nearly ten-to-one. In morning action, an investor bought an April 16 ? 17 put spread on the exchange-traded fund for an average of 21.5 cents, 100,000X. That is, they bought 100,000 April 17 puts on the stock for an average of 34.5 cents and sold 100,000 April 16 puts at 13 cents. Looking at trade history of these two contracts, the massive spread appears to be a position adjustment, in which the investor was selling-to-close a position in April 16 puts on XLF opened on January 8 and is opening a new position in the April 17s. The adjustment comes after a 3.5 percent move higher in the underlying since the position was opened.
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