Wednesday’s Bullish Trading
Yingli Green Energy (YGE) gained 7.4 percent to $3.04 amid strength in the solar names Wednesday. Trina Solar (TSL), JA Solar (JASO), LDK Solar (LDK), and Suntech Power (STP) also outperformed. In options action, volume on YGE was 6.5X the daily average. 6,450 calls and 500 puts traded on the stock. Much of the flow was concentrated in Yingli’s March 4 calls. 4,643 contracts traded against 116 in open interest. The biggest trade was a 434-lot for 15 cents per contract when the market was 10 to 15 cents. It’s not clear why investors were taking positions in these options that are 31.6 percent out-of-the-money. Some might be selling premium against shares as part of a covered call play. Or, others might be buying the contracts on hopes the solar sector will continue to shine over the two months. YGE is already 135 percent higher off its mid-November lows.
Bullish trading was also seen in Tyco (TYC), Trina Solar (TSL), and Decker Outdoor (DECK).
Wednesday’s Bearish Trading
Yum Brands (YUM) added 12 cents to $64.82 and an interesting three-way spread traded on the stock Wednesday. An investor sold 2,500 January 2014 $70 calls on Yum to buy 2,500 January 50 ? 62.5 put spreads, collecting 15 cents on the three-way and apparently opening a new position (because volume was exceeding open interest in all three contracts). Shares lost 4.2 percent Tuesday after the company reaffirmed its 2012 earnings outlook, but said that same store sales at its China division were weaker than expected. The three-way spread, in which upside calls were sold to buy a downside put spread, might have been initiated to help hedge a stock position from further losses through the rest of 2013. Or, it might be an outright bearish play on YUM.
Bearish trading was also seen in Constellation Brands (STZ), WMS Industries (WMS), and MetroPCS (PCS).
Index Recap
CBOE Volatility Index (.VIX) fell to its lowest levels since June 2007 after a record 7-day plunge sent the index to only 13.22 Wednesday morning. However, the market’s “fear gauge” rebounded somewhat later in the day and finished the day up .19 to 13.81 after the S&P 500 Index (.SPX) moved off morning highs. The S&P added 3.87 points to 1,461.02, but finished off its best levels of 1,464.73, on a day of relatively quiet market action. Yet, brisk trading in the VIX pit continued for another day. 364,000 calls and 216,000 puts traded on the volatility index. January 14 puts, which expire a week from Wednesday (last day to trade is Tuesday), were the most actives. 43,156 traded. Open interest in the contract is 160,926 and some investors might have been closing positions in these puts after the steep slide seen in the volatility index since it hit six-month highs of 22.72 on 12/28.
Analyzing the ETF Market
A hefty call spread traded in the January 2015 calls on the SPDR Utility Fund (XLU) Wednesday. XLU, which represents ownership in shares of the utility companies from the S&P 500, was down 7 cents to $35.21 and a 38 ? 40 call spread traded in XLU options that expire in Jan 2015. In this trade, the investor apparently bought 25000 of the upside 38 calls for 80 cents and sold 25000 of the higher strike 40 calls at 36 cents. If so, the position, for 44 cents, seems to be a bullish play targeting a run higher in the utility names this year and next. XLU saw choppy action in 2012 and is basically at the same levels today as it was a year ago.
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