Usually in this space I highlight directional options activity that I find interesting in the prior day’s trading, but this morning I want to focus on a few situations that may be helpful to understand how we decipher and analyze unusual options activity. Here were a few situations that caught my eye in Tuesday’s trading:
1. AAPL – options volume ran hot at 1.5x average daily volume in front of the company’s fiscal Q1 earnings results which the options market implied about a 6% one day move in either direction. Calls outnumbered puts 1.75 to 1, with calls making up 8 of the top 10 most active strikes on the day, with Jan weekly 120, 115 and 114 calls trading 52,000, 39,000 and 36,000 respectively for the top 3 spots. What was most interesting in AAPL yesterday was the massive shift in short dated options prices. With the stock down in 2.5% in the morning in sympathy with MSFT’s 10% decline, options market makers bid implied vol to nearly new 52 week highs:
But by mid afternoon options prices came in very hard, as evidenced by the 2 day chart of the VIX Index on AAPL (VXAPL):
At some point shortly before noon options market makers decided that vol was way too high and began to adjust their expectations for the post earnings move. With the stock up $6 in the pre-market, in line with the implied move I suspect we see vol come in very hard. All of the strategies that we detailed yesterday, no matter your current positioning or directional inclination look to take advantage of very heightened implied vol (read here and here).
2. WTW – not a name we generally see options flow in, but today it was reported that there was an opening seller of 10,000 April 15 puts at 1.20 when the stock was 17.26, up on the day in an otherwise nasty market. The options were printed on the offer and implied vol was up on the day so I wondered aloud if these puts were bought not sold. The stock has gotten creamed in 2015, already down 28% and the break-even on these puts is below the all time lows. If the puts were actually sold, it looks like the buyer of the puts (on the other side of the trade who made the market on the block) started buying shares to hedge what would be approximately 300,000 shares, or a little more than one third of the average daily volume. The options printed at 11:22am, and as you can see from the intra-day chart the stock saw a quick spike, that ultimately resulted in the stock closing up 5% vs the SPX’s 1.34% decline.
I wanted to show this because it’s another example of how confusing and potentially misleading trading off of unusual activity can be, the block was reported as sold to open, just seems like an odd trade in stock where options trade by appointment, seems there are better ways to express a bullish view in a stock like this opposed to capping your gains at $1.20.
3. APC – Interesting trade in the stock when it was $83.
4. IMAX – shares of the Canadian based cinema company broke out to a new multi-year high this week, now up 8% on the year. Today there was a large bullish roll in call options of the stock that represented more than the existing open interest of 50,000 contracts. When the stock was 33.50 a trader sold 29,600 of the March 33 calls at 1.825 to close and bought 29,600 of the March 35 calls for 1.00 to open. The all time high in the stock was around $38 in June of 2011. After flat sales for the last two years, and an expected 10% earnings decline in 2014, consensus calls for a 50% increase in earnings and a 20% increase in sales in 2015. I know little about the company, but unless they made some sort of acquisition that recently closed, I am not sure how that makes a ton of sense.