Friday’s Bullish Trading
A big spread trades in Wells Fargo (WFC) in the wake of yesterday’s stress test announcement. The stock is up $1.23 to $38.20 and moving to record levels after regulators approved the bank’s capital plans. Wells Fargo subsequently announced that it will raise its dividend and increase the size of its stock repurchases. 143,000 calls and 23,000 put traded on the bank. The top trades were part of a spread, in which the investor sold 40,000 April 40 calls on the stock at 11 cents and bought 40,000 May 40 calls for 20 cents. Looking at trade history and open interest of the two contracts, this April ? May 40 call spread, for 9 cents, appears to be rolling. That is, the investor is exiting a position in April 40 calls that was opened in October 2012. They are now opening a new similar position in the May 40 calls. They might expect the stock to continue its advance and climb to more than $40. By rolling to May for April, they are buying an additional month of time for those expectations to play out.
Bullish trading was also seen in Constellation Brands (STZ), Rite Aid (RAD), and International Paper (IP).
Friday’s Bearish Trading
Qualcomm (QCOM) dropped $1.60 to finish $63.975 in active trading of 26 million shares today, but with no obvious company headlines to explain the relative weakness and higher share volume in the chipmaker Friday. The stock is pulling back after gaining 7.6 percent year-to-date. Some investors seem concerned about the risk of additional losses in the stock, as the largest block of options traded in Qualcomm today is a 7415-contract block of April 52.5 puts for 6 cents per contract. It appears to be an opening trade and is somewhat unusual, because the contract is 19.4 percent out-of-the-money and expiring in five weeks.
Bearish trading was also seen in Suntech Power (STP), Myriad Genetics (MYGN) and NY Euronext (NYX).
Index Recap
It’s a busy day of trading in the options market, but without much volatility. The settlement value for March 1013 options on the S&P 500 Index (.SPX) was computed this morning at 1,557.08. The S&P closed down 2.53 points to 1,560.70 on a relatively quiet Quadruple Witch expiration Friday. The index is still within 5 points of the record highs set in October 2007. Meanwhile, CBOE Volatility Index (.VIX), which tracks the expected volatility priced into SPX options, closed up .17 to 11.47. The market’s “fear gauge” fell to 11.30 yesterday and recorded its lowest close since the spring 2007.
Analyzing the ETF Market
It was a busy day of trading in the options on the SPDR 500 Trust (SPY) which is a fund designed to mirror the performance of the S&Ps, lost 20 cents to $155.83 and total volume in the product is 1.4 million puts and 900,000 calls. Some of the activity was driven by expiration-related activity in March contracts on SPY, as it was the last day to trade. The biggest traded on the ETF, however, was a May 148 ? 155 put spread, bought for $1.65, 50000X. The investor bought 50,000 May 155 puts on SPY for $2.78 and sold 50,000 May 148 puts at $1.13, according to a source on the exchange floor. If so, it’s a bearish play and possibly designed to help hedge a stock portfolio through mid-May.
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