Wednesday’s Notable Options Activity: $COST, $MS, $MSFT, $NEM, $SPLS, $TWTR

by Dan February 5, 2015 9:26 am • Commentary

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

 1. SPLS – saw massive late call buying on a day that saw the company make a bid for competitor Office Depot. When the stock was $17, a trader bought 80.000 Jan 2016 17 calls for 2.29 to open and sold a little less than 4 and half million shares.  This could have been stock replacement.  I think it is important to note that prior to the deal there has been a ton of call buying at higher strikes, it seems that investors have set their sites a bit lower now.  We highlighted the following activity last week on Jan 29th:

SPLS – options volume ran 6x avg daily volume with nearly all the volume in calls.  When the stock was 16.85 there was an opening buyer of 21,000 Jan16 22 calls for 75 cents, 25,000 ended up trading on the day. It is important to note that back in early December there was heavy institutional buying of calls in SPLS (read here) prior to activist investor Starboard announcement of a stake in SPLS and pushing for a merger with competitor Office Depot.

2. COST – stock has had a massive breakout to new highs on huge volume in the last couple of days, prior to the stock going ex a $5 special dividend announced on Jan 30th.  Options volume ran almost 6x average daily volume yesterday while the breakdown of put and calls were about even it appeared to be overwhelmingly bullish activity as there was a buyer of 7000 of the Feb 162.,50 calls paying between .65 and .72 cents in blocks of 1k and 2k when the stock was between $155.28 and $156.44.

COST 6 month chart from Bloomberg
COST 6 month chart from Bloomberg

3. NEM – the gold miner has had a massive run in 3015, up 31%, it appeared that a trader closed a prior bearish bet in March selling to close the March 16/15 ratio put spread 12,500 by 25,000x.  There also appeared to be an investor putting a collar on 800,000 shares when the stock was $24.78, 8,000 of the June 27 calls were sold to open at 1.34 and 8,000 June 22 puts were bought to open for 1.22 Offering a call-away level of $27. and protection below $22, plus the 12 cents in premium received for the structure.

4. MSFT – around mid day there was a large opening buyer of 25,000 May 42 puts for 2.28 when the stock was $41.62.  This is a fairly chunky purchase of $5.7 million in premium for an in the money bearish bet on a low stock that is down 10% on the year, and down 15% from the 52 week and 14 year highs.  I would add one point, while the stock is cheap from a valuation standpoint, possibly short term oversold, stellar balance sheet etc etc… the longer term technical set up looks horrible as the stock has recently broken the uptrend that has been in place since early 2013:

MSFT 5yr chart from Bloomberg
MSFT 5yr chart from Bloomberg

5. MS – bank stocks have had an anemic bounce off of the recent lows.  Yesterday MS saw a bullish roll down in calls when the stock was 34.88, a trader sold to close 10,000 March 37 calls at .37 to close and bought 10,000 March 35 calls to open.

6. TWTR – call volume ran 2x that of puts yesterday, as it appears traders position for tonight’s Q4 results.  The options market is implying about a 12% one day move in either direction, vs the 4 qtr avg move of about 15%.  There was an interesting trade when the stock was 40.30. a trader bought to close 2500 Jan16 33 puts for 3.75 and sold to open 2500 Jan17 38 puts at 7.95.  If this is merely a bullish bet the trade is interesting as it would obligate the trader to buy 250,000 shares at $38 on Jan17 expiration, but effectively buying the shares near the all time lows at $30.05 (the strike less the premium received). Discussed on last night’s Fast Money on CNBC: