Option Trading News for Today

It was a slow day for stocks and for options today. Below is a synopsis of the option trading action for the day from Options Express. There were a few options making bullish and bearish moves, and there were a few index and etf options to note.

Cusick’s Corner 03-21-2012

This was a quiet inside day for the market and with the great weather here in Chicago, I guess it was a free pass to get outside and enjoy it. Claims data is due out tomorrow premarket and a low number, 355K or lower, could be a signal of a strengthening labor market or at a bare minimum could be validating the strong data out the last couple of weeks. Europe is coming back into the picture and not in a good way. There is some mounting concern over the PIGS and yields have started to pop in the bond markets, headlines could become a challenge — so keep an eye out. See you Midday.

Stock market averages remain mixed in the final hour of trading Wednesday. It’s been a quiet and slow news day thus far. The economic calendar included Existing Homes Sales, which slipped to an annual rate of 4.59 million in February from 4.63 million the month before. The number was in-line with economist estimates and seemed to have little market impact. And there’s not much news emerging from overseas. Stock benchmarks finished little changed across the Eurozone and the euro is down less than .2 percent and holding around 1.32 on the dollar. Crude oil gained $1 to $107.07 and gold added $6 to $1651 an ounce.

General Electric (NYSE:GE) closed up 13 cents to $20.20 and one of 17 Dow stocks moving higher on a day of mixed trading Wednesday. Options action in GE is interesting, as 124,000 calls and 31,000 puts traded on the stock, which is a ratio of four-to-one. Midday trades included a buyer of 12,600 May 22 calls on GE for 11 cents per contract on NYSE. A source at the exchange says an investor bought the block. Another 12,500 May 22 calls traded on the AMEX and 10,000 on ISE. Options are multiply listed today and can trade on any one of nine exchanges. All told, more than 45,000 May 22 calls have traded on General Electric across the different exchange, with buyers taking positions and apparently looking for the stock to rally beyond $22 through the May expiration; which represents a 9.2 percent advance over the next 58 days. The stock has performed well in the past two weeks and has already rallied 9 percent since March 6.

Bullish trading was also seen in Linkedin (LNKD), Lulumon Athletica (NASDAQ:LULU), and JDS Uniphase (NASDAQ:JDSU).

Chesapeake (NYSE:CHK), a Oklahoma City, OK natural gas company, closed down 39 cents to finish $25.19 and options on the stock actively traded Wednesday. 29,000 puts and 9,780 calls traded today. More than half of the put volume was apparently due to one spread trade, in which the investor bought 5,000 April 25 puts on CHK for 87 cents and sold 10,000 April 23 puts at 28 cents. This 1X2 spread traded for 31 cents on the ISE, where data indicate 1 put was bought, 2 sold, and a new position is being opened. If so, the spread is a bearish play that offers its best payout if CHK falls to $23 at the April expiration, or roughly 9 percent drop in 30 days. The debit is at risk if shares stay above the higher strike and the position is held through the expiration. There is additional risk to the downside when opening put ratio spreads because not all of the lower strike puts, which are sold, are covered by the higher strike puts, which are bought.

Bearish trading was also seen in Live Nation (NYSE:LYV), Assured Guaranty (NYSE:AGO), and Community Health (NYSE:CYH).

Index Trading
Options on the CBOE Volatility Index (.VIX) experienced brisk trading Wednesday. It was the March expiration for the index and the settlement value was just 14.55. By way of comparison, the settlement value at the February expiration was 20.44. VIX is down sharply since that time and any March call options with a strike price greater than 14.55, which is the majority because strikes range from 10 to 100, expired worthless today. Conversely, any put option with a strike price of 14.55 or greater, was in-the-money at expiration – which was also the majority of VIX put options. Total open interest in VIX March calls as of Tuesday was more than 1.7 million. OI on the put side of the options chain was roughly 870,000. Now that the March options expired, many investors were likely opening new positions in later expiration months and that, in turn, explains the high volume in the product. Approximately 617,000 calls and 508,000 puts traded on the index today.

ETF Action
Interesting trading activity has surfaced in SPDR Banking Fund (KBE) this week. Monday and Tuesday, investors were opening positions in May 26 calls on the fund. Shares lost 15 cents to $24.25, but bullish trading in options appears to have continued today. 72,000 calls and only 49 puts traded in KBE options today. One player bought 15,000 June 29 calls for 13 cents per contract. 30,000 total contracts traded today. April 25 calls were the most actives. More than 40,500 changed hands. Much of the flow appears to be driven by call buyers. KBE is an exchange-traded fund that holds shares of 40 different banks. Buying upside calls on the ETF represents an outlook that shares will move higher in the weeks/months ahead. The stock has already rallied 22.3 percent year-to-date.

See Daily Markets for the entire article

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