Thursday’s Notable Options Activity: $ADT, $FEYE, $MCD

by Dan January 30, 2015 6:52 am • Commentary

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

1. FEYE – after being very much out of favor in 2014, closing down 70% from the highs, the stock appears to be attempting to put in a little bottom in the last month, up 20% from the December lows.  Options volume ran hot today at almost 2x average daily volume, with calls outnumbering puts 2 to 1.  The stock saw a very bullish options trade in the form of a call spread risk reversal in Jan2016 expiration.  When stock was 31.83 a trader sold 5k Jan 25 puts and bought 5k Jan 35/50 call spreads paying .80 for the package, the trade breaks even at 35.80 with max gain of 14.20 at 50 or higher, but the trade is a loser at 25.80, with the worst case being put the stock at 25, in addition to the loss of the 80 cents in premium or $400,000 in premium with the potential of being put 500,000 shares of stock at $25.  The company is scheduled to report Q4 results February 11th, the options market is already implying a 10% one day move in either direction. Since going public in late 2013 the stock has declined on average 12% after its five quarterly reports.  The company seems to have minor issues hitting consensus estimates that I assume that have previously guided too.

2. MCD – stock had a massive day, up 5% following news that their CEO was stepping down.  Total options volume ran 5x average daily, with calls outnumbering puts 6 to 1.  When the stock was was 91.70 shortly after the open, a trader sold 37,000 Feb 95 calls at .32 to close and bought 37,000 March 95 calls to open for 91 cents.  What’s interesting about this trade was that the Feb calls were part of a roll earlier in the month, from January 5th:

when stock was 93.43 early in the trading session a trader rolled a bullish view, selling 35,000 Jan 95 calls at .90 to close and bought 35,000 Feb 95 calls for 2.27 to open.

I suspect the Jan calls had been bought when the stock was higher, thus resulting in a loss, and you can see that the Feb calls were sold at a $1.95 loss, or $6,825,000.  Now the trader is risking an additional $3,367,000 in premium that the stock will be over $95.91 on March expiration.  Who knows, this trade could be to protect a short position, or leverage a long, but as usual it is very hard to delineate unusual options activity without knowing the investors intent.

3. ADT – just before the close, the security services company that does not have a ton of open interest and has averaged 2,000 options contracts a day for the last month saw a flurry of call buying out in April. When the stock was around $34.85 a trader paid .25 for 15,000 Apr 43 calls to open, 27,000 ended up trading on the day, making the strike the single largest line of open interest. Coming into the day there was only 51,000 total open interest, evenly split between calls and puts.  The company reported their fiscal Q1 Wednesday after the close and registered a beat.  What’s interesting to me about this call purchase is that the options are only a 10 delta, so not likely a stock replacement as they have a generally low probability of being in the money without some sort of corporate action, yet the break-even up 24% is a t level where the stock was trading in late 2013, down from a high of $50.  Oh and one last point, the stock has short interest of about 23%, while the top 5 holders own about 40% of the shares outstanding.  A pretty interesting set up if there ever was a good reason for the shares to rise, they could rise quickly in a straight line.