Thursday’s Notable Options Activity: $AAL, $AVP, $C, $EEM, $LL, $TLT, $WMB, $X

by Dan January 23, 2015 8:34 am • Commentary

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

1. TLT –shortly after the open, when the Treasury Bond etf was 132.51, a trader bought what is called a call tree, buying 4800 March 133 calls for 2.95, selling 4800 March 137 calls at 1.60 and Selling 4800 March 141 calls at .90 all to open, paying .45 for the package.  So how does this trade make money? If the etf is above 133.45 and between 141, the trader can make the difference between the long call strike, plus the premium paid (45 cents) and the first short strike (137), which would be $3.55. Between 137 and 141 the trader has no additional gains of losses, but the profit would trail off between 141 and 144.55 (the second short strike and the gains from the long call, above 144.55 the trade would be a loser. Think of this as a slightly less confident 1×2 where the trader wants a little more room to the upside in case the etf spikes more than they thought.

A week ago we put on a short biased TLT trade looking out to March expiration: New Trade – $TLT: No Mr. Bond, I Expect You To Die

2. AVP – has been in a death spiral with no shortage of put buying over the last few months as the stock approached 20 year lows, with investors seemingly bracing for much lower lows. The stock was up 15% yesterday on rumors that a private equity firm is going to take a stake in the beleaguered beauty products company. Options volume was 5x avg daily,with 80% of the volume in puts, one trader rolled up a large block of Apr 7 puts, selling 32,000 at .43 to close and bought 32,000 Apr 9 puts for .80 to open when the stock was 8.50

3. WMB – saw some call buying, trading 4x average daily, when stock was 43.15 a trader paid .83 for 20,000 Feb 45 calls to open.  The stock recently bounced off of important 1yr technical at $40, but still down 26% from the 52 week highs near $60.

4. X – when the stock was $21.85 there was a closing seller of 6900 March 30 calls at .12, followed by an opening buy of 15,000 February 24 calls for .58 to open.  This could have been a roll down by the same investor, but it really doesn’t matter. The stock’s ytd decline of 17%, and the 50% drop from the 52 week highs in Sept tell the whole story. There are those who will give up on existing long biased trades, and those new to the story who will see a massively oversold stock.  We had some further thoughts on the stock yesterday: Name That Trade $X: US STEAL?

I discussed this call buying last night on CNBC’s Fast Money:

5. C – U.S. Banks finally caught a bid, C saw opening call buying, and total options volume ran 2x average daily. When stock was 49 a trader paid .41 for 5,000 June 57.50 calls to open, break-even at 58, up 18% on June expiration, that is above the 5 year highs made in December at $57

6. EEM – optionms volume was massive yesterday in the emerging markets etd, trading 1.5x average daily (500,000 contracts to the the average 200,000).  EEM saw a good size bearish trade out in April, when the etf was 40.76 a trader paid .50 for 30,000 April 38.50 / 34.50 Put Spreads to open

7. LL – saw a good size bearish roll when the stock was 56.51, a trader sold to close 15,000 Feb 60 puts at 7.50 to close and bought 15,000 March 60 puts for 10.30 to open. The company has not set its reporting date, but Bloomberg estimates Feb 19th.   LL is down 14.5% so far in 2015, but still up 13% or so from the 52 week lows made in Sept 2014 just below $50. The stock had a massive day, closing up 7.5%, I suppose the 22% short interest doesn’t hurt on rally days like yesterday.

8. AAL – trading at new all time highs...appeared to be some profit taking, 5,000 Feb 52.50 calls were sold at 4.05 when stock was 54.70 to close and 4,000 Feb 55 calls sold to close at 2.525

9. GE – saw what looked like closing put volume when stock was 24.08 a trader pays .31 for 16,000 Jan 23rd weekly puts to close,there is 38,000 open interest, the company reports Friday before the open

10. MCP – crazy trade in stock trading for dimes. MCP sees a buy of 25,000 June 50 cent puts,paying 26 cents to open, they break-even at 24 cents on June expiration (stock trading .45). There was also opening selling of the Sept 1 calls, at 5 cents open, 8000x