Wednesday’s Notable Options Activity: $CAT, $CIEN, $HYG, $TER, $XLF

by Dan December 4, 2014 8:16 am • Commentary

The S&P 500 index closed at a new all time high yesterday. Hallelujah!  Here is some unusual options activity that caught my eye yesterday:

1.  XLF – total options volume ran 4x avg, with most of the action taking place in short dated calls.  When the etf was $24.58, the Dec 20th / Jan 2nd weekly 25 strike call calendar was bought for .04 (trader sold the Dec 25 calls to open, and bought the Jan2nd weekly calls to open).  The intent of this trade is that the etf slowly moves towards $25 by Dec expiration, now only two and half weeks away, and use the premium collected in the Dec to help finance owning the Jan2nd weekly calls.  A total of 100,000 Jan2nd 25 and 80,000 Dec 25 calls traded on the day, making them the two most active options.  Threading the needle a bit, but making an options broker or two very happy 🙂

2.  CAT – saw a fairly chunky put purhcase as the stock hovers around the physcologically important $100 level and after a sharp 5% drop over the past week.  When the stock was $101.35 a trader paid $4.25 for 4400 May 95 puts to open.  Whether or not this is an outright bearish bet or protection against a long is unknown, but it is interesting to note that the break-even on this trade is $90.75, down about 10% from current levels, which also corresponds with the October lows.

3. CIEN – stock has been decimated in 2014, down 31%, year to date, but rallied 3.7% yesterday on seemingly no new news, while options volume ran 4x avg daily. When stock was 16.42, a trader paid .83 for 6,000 Jan 17 calls to open, while it looked like there were opening buyers of the Jan 18 calls, with 7500 trading on the day.  CIEN reports fiscal Q4 results Dec 11th prior to open, the options market is implying about a 9% one day move in either direction, which is basically inline with the 4 qtr average move.  The company has long rumored to be a take-over candidate, and with only a $1.8 billion market cap, and 18% short interest it doesn’t take too much to get this pig going.

4. HYG – some of the smartest investors I know and read, see the potential for the decline in oil prices to lead to some sort of credit event in the sector which could have broader implications in the high yield credit markerts outside of the oil patch.  WIth the iSHares iBoxx High Yield Corporate Bond ETF nearing the 52 week lows made on Oct 15th, put activity picked up yesterday, almost 5x average daily volume.  When the HYG was 90.43, 1% from the 52 week low, a trader paid .60 for 15,000 of the Jan 89/85 put spread to open, which breaks even at 88.40, with max gain of 3.40 at 85 or below.

5. TER – not a name that I think I have ever written about before on the site, but the Semiconductor test equipement maker saw some unusual call activity with 14,000 calls being bought in January expiration.  To put yesterday’s total call volume of 14,688 in context, that amount is equal to 20% of the stock’s total options open interest.  Yesterday morning when the stock was 20.09 a trader paid .90 for 6,000 Jan 20 calls to open, 8600 traded on the day, with 2900 of the Jan 17 calls trading and 1,000 Jan 21 calls.  Maybe there is take-over spec or the possibility of activist involvement, the stock has a $4,4 billion markert cap, $1.2 billion in cash, and no debt trading at 16x expected 2015 earnings.