Unusual Activity Seen in the Options Market

An unusual amount of activity was seen in the options market on Friday for AKS, X, WFR, LDK, GLW, XLNX, PXP, and KMP. The article below discusses that as well as the activity seen in the SPX and ETF market.

Unusual Options Activity Review For Friday, October 28, 2011

Bullish Trading

AK Steel (AKS) rallied throughout the day and finished near session highs. AKS added 75 cents, or 8.9 percent, to $9.17 on Friday. Options action picked up in the steelmaker picked up as well, with 26,000 calls and 8,800 puts traded on the stock. November 9 calls, which are now 17 cents in-the-money and expiring in three weeks, were the most actives. 5,110 traded. November 9, December 9 and December 10 calls saw brisk trading as well. Relative strength in the stock and high call volume seem to reflect some bullish sentiment building in AK Steel. There was no company specific news on the stock. The bullish trading might be a play on reports that iron ore prices � a key ingredient in steelmaking � have been falling sharply on decreasing demand from Chinese manufacturers.

Bullish trading was also seen in US Steel (X), MEMC (WFR), and LDK Solar (LDK).

Bearish Trading

A large put spread surfaced in Corning (GLW) Friday afternoon. After an 8.8 percent rally on earnings results Thursday, shares of the specialty glass maker lost 10 cents to $15.21. In afternoon trading, a 27,000-contract block of December 14 puts traded on GLW at the 49-cent asking price. Meanwhile, a 27,000-block of December 12 puts traded on the 13-cent bid. Taken together, the two trades appear to be part of a Dec 14 -12 put spread, bought for 36 cents, 27000X. If so, it’s a bearish play with a max payoff if shares fall to $12 through the December expiration. The entire debit is at risk if the position is held through the expiration and shares stay above $14. A shareholder might have initiated the trade to hedge recent gains in the stock. GLW has rallied almost 30 percent off the 52-week low of $11.88 seen on October 3.

Bearish trading was also seen in Xilinx (XLNX), Plains Exploration (PXP), and Kinder Morgan (KMP).

Index Recap

Overall trading volume in the index market was light Friday and volatility fell. Approximately 510,000 calls and 801,000 puts traded across the S&P 500 Index (.SPX), S&P 100 Index (.OEX), and other cash indexes, which is about 90 percent the recent average daily volume, according to Trade Alert data. The S&P 500 Index traded in a narrow 11-point range and finished up just .49 points to 1,285.08. Meanwhile, CBOE Volatility Index (.VIX), which tracks the implied volatility priced into S&P 500 Index options, lost .93 to 24.53. VIX finished at its lowest levels since August 3 and November 25 puts on the index were busy. 59,260 traded. 90,000 of these same put options traded Thursday. Open interest in the contract is 210,135 and currently the largest position in VIX options. Some players might be selling-to-close positions in the now in-the-money puts after the big decline in the underlying index over the past four weeks. VIX has tumbled 46 percent since October 3.

Analyzing the ETF Market

SPDR Financials Fund (XLF) added a penny to $14.05 Friday and gained 7 percent on the week. The ETF, which holds shares of the financial-related companies from the S&P 500, has now rallied 24.6 percent over the past four weeks. XLF closed at a 52-week low of $11.28 on October 3. Trading in the options on the ETF has been active. 234,000 calls and 126,000 puts traded in the product Friday. The top (or largest) trade was a block of 46,000 November 14 calls, which traded on the International Securities Exchange. Data from the ISE indicate that an investor sold the block to close a position. A separate block of 25,000 December 15 calls on XLF was sold at 22 cents on the AMEX Friday, which is possibly closing trade as well. Some investors might be liquidating blocks of XLF calls on the view that the recent rally in the banks and brokers might soon run out of steam.

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