Friday’s Bullish Trading
Viacom (VIAB) is up 18 cents to $67.70 and has now rallied 5.8 percent since earnings were reported Wednesday morning. Trading in the options on the stock has been busy this week, including Friday. In morning trading, an investor bought 5,000 June 70 calls on VIAB for $1.20 and sold 10,000 June 72.5 calls at 50 cents. The 1X2 call ratio spread, for 20 cents, traded again another 5000X a bit later. Consequently, volume in the Jun 70s is 10,000 contracts and 20,000 Jun 72.5 calls have also changed hands. The ratio spreads will create the largest blocks of open interest in VIAB (outside of the 19,686 contracts of OI in the May 67.5 calls) and seems to be expressing confidence that that the stock will climb to $72.5 through the June expiration, or +7.1 percent over the next seven weeks. The debit is at risk if shares remain below $70 and the position is left open through the expiration. At that point, the calls expire worthless. There is additional risk to the upside due to the fact that not all of the 72.5-strike calls (which were sold) are covered by the 70-strike calls (that were bought).
Bullish trading was also seen in Noble Energy (NE), TEVA, and EMC.
Friday’s Bearish Trading
Gilead Sciences (GILD) had a good week. The stock added $3 to $55.18 today after the company reported earnings and was up yesterday on positive study results from one of the biotech’s experimental drugs. GILD has rallied 10 percent over the past two days and is notching record highs. On the options front, an interesting trade on GILD today is a hefty 50,000-contract block of August 50 puts for 6 cents per contract. An investor bought the puts, according to a source on the exchange floor, and the activity will create the largest blocks of open interest in the name. A large shareholder might have initiated the trade as a type of hedge or protective put strategy after the recent rally in the stock.
Bearish trading was also seen in KB Homes (KBH), Macy’s (M), and Silvercorp Metals (SVM).
Index Recap
The NASDAQ 100 Index (.NDX) is seeing more activity than usual. The index tracks the price action of the top 100 non-financial companies with shares listed on the NASDAQ Stock Market. It is market value-weighted and big tech stocks dominate the index. NDX is up 33.10 to 2944.20 Friday and to levels not seen in more than a decade. Options volume is running 2.5X the daily average, as about 42,000 calls and 46,000 puts traded on the index. One investor was apparently selling 4,500 May 2975 calls on NDX today at $14.80 per contract to open 7,000 May 3000 ? 3025 call spreads. If so, this position adjustment seems to be expressing additional confidence in the tech sector for the next two weeks.
Analyzing the ETF Market
Options on the PowerShares QQQ (QQQ) are busy as well. The so-called Qs hold the same stocks as the NASDAQ 100 and the shares are designed to equal about 1/40th the value of NDX. QQQ is up 83 cents to $72.11 per share and total options volume on the ETF is 475,000 calls and 276,000 puts. Weekly 74-strike calls (that expire 5/31) are the most actively traded options contract across the market today. More than 94,000 traded so far, as some investors are possibly taking positions in anticipation of further gains for the tech sector throughout the month of May. Meanwhile, implied volatility in the QQQ, as measured by the QQV Index, is down .40 to 13.02.
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