Too Many Options: $AAPL, $CIEN, $CNP, $EWZ, $MAT, $VIX

by Dan February 18, 2014 4:31 pm • Commentary

Here is a list of the some of the most interesting untied options activity from today:

1.  MAT- If I have said it once I have said it 1000 times, taking unusual options activity at face value is often times useless.  Shortly before 3pm today there was an opening seller of 15,000 MAT March 36 calls at .62 to open when the stock was 35.63.  When I saw this trade and looked at the stock’s chart, down 25% on the year, making fresh 52 week lows, I asked aloud why on earth would anyone sell these essentially at the money calls for less than 2% of the underlying stock price with more than one month to expiration? As a bearish bet it has fairly poor risk reward where the seller can only collect the .62 in premium, but could have unlimited losses above $36.62.  As an overwrite if you were long the stock, this sale would not add a ton of yield, or provide much of a buffer to the downside, but it would severely hinder your potential to make back any losses you suffered on the way down with the stock.  So in sum, you get my point, unless you have spoken directly with the investor/trader about why they did what they did, and against what, following this activity would be silly.

2. AAPL – With the stock recovering the entire gap from its fiscal Q1 earnings report on Jan 27th, trading back at $550 the spot it closed at prior to the print, a trader closed a bullish bet by selling 3400 October 550/575 call spreads at 9.80.  The next identifiable event is the company’s Feb 28th shareholder meeting, but this has likely been upstaged by the company’s accelerated share repurchase completed earlier in the month and Activist Investor Carl Icahn pulling his proxy.

3. TGT – reports before the open Feb 26th . Shortly after the open today, when the stock was 56.35, a trader bought 5k each of the Feb 28th 53 and 52 puts for a total of .39.  The stock has not been at the break-even of those puts in nearly 2 years.  Read Enis’ Chart of the Day on the Big 3 Big Box retailers here.

4. EWZ – Brazilian equities still lag the world, down 8.5% ytd, and only up 2% from the 52 week lows made earlier this month. Earlier today when the EWZ was $40.05 a trader bought 22,000 June 32 puts for .42, making the break-even down 21% a level not seen in 5 years.

5. VIX – A trade that regular readers of RiskReversal have become familiar with on the site for portfolio protection traded in the market in fairly good size earlier March. A trader sold 15k March 14 puts at .64 to buy the March 15/20 call spread for 0.69, (package costing .05) and then traded the same call spread risk reversal for even money 20,000 times. The March 14 puts were the most actively traded index option all day with 85k trading.

6. CIEN – the stock is up 11% in 2 trading days since announcing a product distribution deal with Ericsson, and up 20% since the lows on February 5th. Options were very active today, particularly calls, trading 6x average daily volume, with the largest print on the day a block of 3700 March 28 calls bought for .72 to open, making it the most active line with 15,000 trading so far on the day. The spike in the stock from an unplanned event has caused the implied volatility, or the price of options, to spike about 10% in the last 2 trading days, racing towards levels that it usually trades at right before an earnings announcement.

7. CNP – Hard to make out exactly what happened here, but it looks like there was a buyer of 10,000 May 25 calls to close for .90, this could have been a long holder closing an overwrite when the stock was $23.99 and then simultaneously the trader sold 15,000 May 22.50 puts to open at .60.  This could have also been part of yield enhancement strategy as implied vol has become elevated in the utility.