Friday’s Notable Options Activity: $BABA, $HTZ, $MS, $PBR, $SDRL, $TSO, $UPS, $USO, $VIX

by Dan January 26, 2015 7:34 am • Commentary

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

1. BABA – when stock was $104.50 a trader sold 5,000 Feb 6th 110 weekly calls at 1.59 and bought 4800 Feb 6th weekly 100 puts for 1.75 to open.  This looks like a collar against 480,000 shares of stock with a call-away level up at 110 (less the 16 cents in premium paid for the structure) and protection below 99.84 (put strike less the 16 premium).  Classic protection trade structure into an event where the investor is more worried about downside than upside.

Friday I placed a bearish leaning trade in front of this week’s earnings in BABA, but the trade had little to do with the impending results and mostly to do with the onslaught of stock to come off of a 6 month IPO Lock-Up expiration in March.  Read post here

Watch clip from Friday’s Options Action on CNBC:

2.VIX – total options volume was 1.75x average daily, with massive put volume at 2x that of calls. When the index was 16.76 there was a buyer of 100,000 Feb 14 puts, paying .175 to open, 240,000 ended up trading on the day.  The next most active strike was 59,000 of the Feb 15 puts, with many looking bought. What’s interesting about this action is that selling puts in near the money strikes to finance the purchase of upside calls or call spreads was a very popular trade in 2014 when the VIX was 12 or 13, traders here taking the view that volatility settles in the coming weeks.

3. PBR – the Brazilian oil company saw heavy put activity on Friday, with total options volume running more than 2x average, with puts 4x that of calls.  When the stock was 7.32 there was a long dated in the money roll of 15,000 Jan 2016 expiration 8 puts where trader sold 15,000 at 2.19 to close and bought 15,000 Jan 2017 8 puts for 2.80 to open.  There was also a large opening buyer of the April 6 puts paying .41 for 50,000, a total of 80,000 traded on the day.

4. MS – the stock has had a fairly anemic bounce off of last week’s weeks post earnings low of ~$34, and saw some short dated out of the money put buying Friday when stock was $35.41, a trader paid .22 for 10,000 Feb 32 puts, break-even at $31.80 down about 10% in less than a month, seems like a long shot.

5. TSO – saw a hefty call purchase on a down day in crude, but a day that saw refiners massively out-perform with TSO up 4% and VLO up 4.5%. When TSO was $77.96, a trader paid 4.90 for 7500 May 82.50 calls, marked closing vs 13,800 open interest, 11,000 traded on the day vs 13,800 open interest, possibly closing an overwrite.

6. SDRL – saw a large opening put buyer when the stock was $10.26, a trader paid .49 for 11,400 Feb 9.5 puts.  The stock is hovering above its 52 week low made a couple weeks ago at $9.18 as traders possibly eyeing the next stop as the 2009 low of about $5.5o, possibly a protection trade? The company does not report earnings until Feb 26th, after February expiration.

7. HTZ – the stock is now down 13% ytd, nearing important technical support at $20.  The stock has been in the news as Carl Icahn took a stake in 2014, but it appears that there are still plenty of open issues with the company’s financials before activists can effect positive change. Friday when the stock was $21.70 a trader paid .16 for 20,000 of the March 15 puts to open, representing a break-even at $14.86, down about 30%.

8. UPS – shares declined 10% after the package carrier offered results and guidance that missed expectations.  Options volume ran 5x average daily volume with the action not exactly as one would expect (traders scrambling for puts) on such a dramatic move from all time highs the prior day, nine out of the top ten most active strikes were calls.  One reason for this was that the results were pre-announced, meaning unscheduled and with the stock’s prior price action owners of calls were caught off sides so to speak.  Much of the call activity looked to be closing as traders look to sell prior bullish bets. The three most active strikes were 3600 Apr 110 calls, 3600 Jan16 100 calls, and 3300 April 105 calls.

9. USO – with crude closing very near the prior 52 week low, the USO etf that tracks the price of WTI saw some bearish action closing at a new 52 week low.  When the etf was $17.01 a trader sold 20,000 Feb 19 puts at 2.32 to close and bought 30,000 Feb 16.50 puts for .86 to open.