Wednesday’s Notable Options Activity: $AAPL, $BUD, $COP, $COST, $JPM, $MS, $ODP, $TOL

by Dan December 11, 2014 7:56 am • Commentary

Here is some untied, generally directional options activity that caught my eye during Wednesday’s trading:

1. ODP – Options volume exploded today doubling the entire existing open interest of 115,00 contracts coming into the day, with nearly all the activity in calls.  The most active strike was the Jan 8 calll where 67,000 traded on the day, with 40,000 bought to open for .175 when the stock was $6.70.  There was also a purchase of 20,000 the July 7/8 call stupid, which means that a trader bought both strikes equaling 2.05 in premium when the stock was $6.89.

2. AAPL – when the stock was $112.04, a trader paid .06 to buy 20,000 Jan 80 puts to close.  What’s interesting about this trade that this was likely a bullish bet on AAPL that worked out very well, and now the options market suggests there is only a 1% chance that these options are in the money on Jan expiration, but the trader decided anyway to pay $120,000 in premium to cover these. Sound risk management, or overly cautious??

3. TOL – after reporting a weak outlook shares of TOL got drilled closing at the dead lows, down almost 8% on the day.  Options volume ran about 2x avg daily volume with the most active strike the Jan 36 calls.

4. BUD – total options open interest was only 26,000 contracts heading into the day, but in today’s trade there was a large bullish trade when the stock was 114.16, a trader paid .80 for 10,000 March 130 calls to open vs selling selling 110,000 shares at 113.50.  Given the low delta of the option this appears to be clearly directional as the trader likely covered the shares but traded vs stock with the market maker to secure tighter pricing on the options.  Possibly a cheap way to lever a long or to put a limit on a short?

5. MS – to reiterate, you never can really know what’s going on in a large block of options without having intimate knowledge of the trade.  When the stock was $37.99 shortly after the opening there was an open buy of 20,000 Dec 20th (next week expiration) 33 strike puts of .06, or $120,000 in premium.  These puts have 7 more trading days to break-even down 13%.  Your guess is as good as mine, but obviously the most likely reason would be a disaster hedge for a long position of 200,000 shares.  Total options volume ran 3x average daily.

6. JPM – led the decliners in the banking sector, closing down 2.8% after it was leaked that JPM could have a $20 billion capital shortfall under new banking regulations.  The most active strikes were 5300 of the Dec 20th 57.50 puts and 3300 of the Dec 12th 61 puts.

7. COP – shortly after the open when the stock was $63.09 there was a buyer of the Dec 20th (next week) 64/67 call spread, paying about .96 for 4,000.  This trade would break-even at $64.96 in 7 trading days.  CC had a great post yesterday detaling COP implied volatility, read here

8. COST – the stock had a fairly large reversal from the early highs at $146.50 to the closing lows at $140.25 after reporting better than expected fiscal Q1 results this morning.  Options volume ran 5x avg daily volume, with the most active options the Jan 9th weekly expiration with 1800 trading for about $2.30 when the stock was $141. Earlier in the day when the stock was $144 I bought a Jan 143/135 put spread with the thought that there is a lot of good news in the stock at new all time highs, and that at 28x earnings the stock is just too expensive for its expected growth.  Read trade here.