Wednesday’s Notable Options Activity: $VIX, $XLE, $USO, $IEV

by Dan December 18, 2014 9:19 am • Commentary

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

1. VIX – December expiration in the VIX was 24.09 on yesterday’s open, up 65% from the November settlement of 14.55, Spot VIX closed down 17.50% yesterday following the largest up day in the SPX for 2014. And with the futures up more than 1% in the pre-market it feels like the VIX could be headed back to the mid teens in a quick. Much of the flow in VIX options was dominated by rolling of calls and spreads out from Dec expiration to Jan.  Prior to the Fed announcement there was a call seller closing a bullish bet, selling 26,000 Jan 21/26 call spreads at .80.  After the Fed announcement and as the market rallied Put buying in Jan dominated, as four of the top five most active strikes on the day the Jan 15, 16, 18 and 22 strike puts with 55,000, 60,000, 45,000 and 45,000 trading respectively.

2. XLE – with the price of crude stabilizing, energy stocks found their footing for the second straight day.  When the etf was $75.29 a trader rolled down a bearish bet by selling 44,000 of the Jan 75 puts to close at 3.15 and bought 44,000 Jan 75 puts for 1.55 to open.  Options volume ran 2x average daily volume.  By the end of the day, the XLE had rallied almost $2 from the point this trade was executed, and the Jan 75 puts that were bought for 1.55 closed at 1.20 resulting in a $1,320,000 decline in value on the position.  The nature of such a roll down leads me to suspect that this trade was a hedge against a basket of large energy stocks.

3. IEV – I actually didn’t know this etf existed until I saw this print yesterday. The IEV is a US listed etf that tracks the performance of the S&P Europe 350 index....when the etf was just $42.76 a trader paid .52 for 15,000 of the March 39/36 put spreads.  With this morning’s gains in Europe included, the EuroStoxx equity index (SX5E) is up nearly 7% from Tuesday’s lows.

4. USO – despite crude stabilizing without registering large gains,  there appeared to be either some monetizing of hedges or closing bearish bets in the etf that tracks the price of WTI oil  The two most active strikes were the Jan 20 puts and the March 21 puts with 21,000 and 15,000 trading respectively much of the action looked like closing selling.   There were two trades that caught my eye, not because of the premium commitment, but because of the choice of strikes. When the etf was $20.95 there was a buyer of 5300 of the Jan15 $12 puts for .05 and 6300 of the Jan15 $11 puts for .05.  These options have less than a 1% chance of being in the money in a month, but a trader spent $58,000 in premium for the potential that they could.

5. KO – the stock has been a relatively poor performer to many other consumer staples and the broad market, unchanged on the year despite its 3% dividend yield and generally defensive nature.  Valuation, trading at 20x 2015 earnings that are expected to be flat (with flat sales growth) is likely a sticking point and their dollar exposure.   Yesterday when the stock was $41.13 around noon it looked like a trader rolled a bearish position out a month, selling 18,000 Dec 42.50 puts at 1.42 to close and bought 18,000 Jan 42.50 puts for 1.67 to open.