Tuesday’s Notable Options Activity: $AA, $HYG, $SPLS, $T, $YUM

by Dan December 10, 2014 7:49 am • Commentary

Here is a list of some untied, generally directional options activity that caught my eye during Tuesday’s trading:

1. SPLS – for the third consecutive day the stock saw unusually large call activity, with today trading 10x the average daily volume with 156,o00 calls to 18,000 puts.  When the stock was $14.72 a trader bought 58,000 June 16 calls to open vs selling almost 4 million shares of stock.  This could have been a stock replacement trade, but also very likely a straight volatility play. It’s impossible to know. Especially when you consider what appears to be the directional nature of the prior two trading days flow in the name, as we have been reporting on, from yesteday’s Notable post:

SPLS – for the second consecutive trading day, options volume ran hot in SPLS at more than 3x avg daily volume with the majority of the trading taking place in calls.  When the stock was $14,32 a trader rolled a bullish view out, selling 15,000 Jan 15 calls at .35 to close and buying 20,000 June 15 calls to open for 1.10 making the break-even on this trade at $16.10 (basically at the 52 week high, marked in red below.) As we noted in yesterday’s post, Friday saw accumulation of March and June calls (SPLS – Call volume ran 3x average daily with a buyer of 15,000 March 15 calls for .60 to open, and buyer of the June 15 calls, 18,000 bought to open for .95 to open).

2. T – the stock had one of its worst days in a very long time, down almost 3%, with competitors VZ and S down 4% an TMUS down 8%.  The TMUS and S have done exactly what they had hoped, dramatically accelerated the race to the bottom on wireless pricing, and now the whole industry has felt this pain on the profitability front.  Total options volume ran 4x average daily volume with calls outnumbering puts by a margin of two to one.  The largest options block on the day was a buy of 12,500 March 31 puts for .77 to open when the stock was 33.14, while the second largest block was a buy of 11,500 Jan 33 calls for .62 to open when stock was 32.82.  T’s dividend now yields a whopping 5.6%.

3. YUM – yesterday afternoon I detailed my short term bearish view on the heels of MCD’s disappointing November same store sales and laid out the potential for a guide down in front of Thursday’s analyst meeting (read here New Trade – YUM Taco Hell).  Very simply I looked out to January expiration and bought the 75/70 put spread.  Yesterday when the stock was $75.25 a trader expressed a similar view, but decided to buy a calendar spread with two different weekly options in December, buying to open 1500 Dec 12th weekly 74 puts and selling to open 1500 Dec 26th weekly 71 puts.  The company pre-announced disappointing China sales overnight, and the stock is marked down almost 5% in the pre-market.  One for the good guys.

4. AA – total options volume ran almost 4x avg daily with puts outnumbering calls 3 to 1. When the stock was 15.99 a trader sold 15,500 Dec 16 puts at .39 to close and bought 15,800 Jan 15 puts for .39 to open rolling down and out.  And when the stock was 15.82 a trader sold 14,000 Dec 16 puts at .45 and bought 12,000 Jan 16 puts for .85 to open rolling out and up. This last roll could have been a closing trade as their is sufficient open interest to cover in both strikes.

5. HYG – the high yield etf came dangerously close to making a new 52 week low, before reversing on closing very near the high of the day.  The smart money has its eye on the high yield credit space given the massive exposure to the energy space.  In the morning yesterday it looked as if traders peeled out of short dated bearish bets near the lows.  When the etf was 89.36, 11,000 of the Dec 90 puts were sold at .90 to close, prior to that when stock was 89.48 there was a seller of 3k dec 90 puts at .95 to close, 16,000 traded on the day.  Also, there was a closing seller of 5,000 Dec 88 puts at .24 and 5,000 Dec 87 puts at .10 when stock was 89.46.  Put volume made up 95% of the options volume on the day.

The five year chart of the HYG overlayed against that of crude shows quite the correlation, until the recent breakdown in crude. What’s next? A snap back in crude or a credit event?

From Bloomberg
From Bloomberg