Tuesday’s Notable Options Activity: $CIEN, $IYR, $MU, $SMH, $SPY, $TLT

by Dan February 25, 2015 7:03 am • Commentary

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

1. SPY – the S&P 500 closed at a new all time high today, and despite total options volume running 70% of normal, puts outnumbered calls to more than 2 to 1, and puts made up the top 8 of the top 10 most active strikes on the day.  When the SPY was 211.50, a trader rolled what appears to be protection up and out, selling to close 15,000 of the March 200/185 put spreads at .40 and buying 7500 of the May 205/190 put spreads for 2.18 to open.  There was also a buyer of an out of the money put butterfly, when the etf was 211.50 a trader paid 1.30 for 10,000 by 20,000 by 10,000 of the June 130 /160 /190 put butterfly.  This trade breaks-even at $188.70, with profits of up to 28.70 between 188.70 and 161.30, with a max gain of 28.70 at 160.  Lose of 1.30 above 190 and below 1.60.

2. IYR – despite the bounce in Treasuries following Fed Chair Yellen’s testimony in front of Congress that many market participants did not take nearly as dovish as the bond rally might have suggested, some high yielding sectors took it on the chin like the Reits.  The IYR, the iShares Real Estate etf closed down 1.9% to its lowest levels in almost 2 months, and below its 50 day moving avg (purple line below) for the first time since mid Oct:

IYR 1 Yr chart from Bloomberg
IYR 1 Yr chart from Bloomberg

Total options volume ran 1.5x avg daily volume, with puts making up 90% of the total volume.  The top ten strikes were all puts, with the largest trade on the day a bearish roll with the etf 79.36, a trader sold to close 15,000 March 80 puts at 1.68 to close and bought 12,500 of the April 80 puts for 2.54 to open.

3. TLT – the iShares 20 year Bond etf had its best day in weeks, closing up 1.3% on the perceived dovishness of Fed Chair Yellen’s commentary to Congress.  While the price action was encouraging for those who think the Fed is on hold from the previously discussed June hike of the Fed Funds rate, the bullish action was not exactly confirmed by Reits (discussed above) or Utility stocks with the XLU only up 70 bps.  Well it didn’t feel like investors were tripping over each-other in a quest for high yielding bond proxies. When the etf was $128.45 a trader paid .53 for 6,000 by 12,000 of the June 130/137 1×2 call spread to open.  Whats interesting about the choice of strikes is that $130 is an important technical level, which also corresponds with the etf’s 200 day moving average (purple) and 137 just below the 52 week and multi week high made on Jan 30th.  This trade breaks-even at 130.53 on the upside, with a max gain of 6.47 at 137.  Profits trail off between 137 and 143.47, with losses above.

TLT 1yr chart from Bloomberg
TLT 1yr chart from Bloomberg

4. CIEN – the networking equipment vendor reports fiscal Q1 results Thursday March 5th before the open.  The stock has rallied over 40% since its mid October 52 week lows, and is now threatening to break through technical resistance at $20:

CIEN 2yr chart from Bloomberg
CIEN 2yr chart from Bloomberg

When the stock was 20.30 a trader paid 1.12 for 10,000 of the March 20 calls to open.

 5. MU – total options volume ran 1.5 daily volume on a day that saw the stock trade in a very wide range to the downside.  Shortly after the open MU shares were down roughly 8.5% (but only closed down 2%) on reports that Apple will be using memory chips from Samsung in place of those previously supplied by MU for the iPhone 6s (read here).  With the stock near its lows shortly after the open when the stock was 29.43, there was a seller of 4600 April 27 puts at .74 to close and a seller of 3700 April 32 calls to close.  It looks as if one trader took the weakness to exit a bearish trade and another to cut their loses on a bullish trade.  We have on a bearish trade in MU in April expiration that we updated this morning (read here).

6. SMH – one of the inputs for entering the bearish MU trade in the first place was large put buying we saw a couple weeks back in the semiconductor etf.  With the SMH approaching new all times shortly after the open at $56.28 there was an opening buyer of 50,000 Apr 55 puts for 1.35.  To refresh back on Feb 12th and 13th there were similarly sized buyers of puts in March expiration:

Thursday Feb 12th: When SMH was $55.64, a trader paid 1.03 for 45,000 March 54 puts to open

Friday Feb 13th: when SMH was $56.28 a trader paid 1.02 for 50,000 March 55 puts to open

It appears that an investor is looking for very near the money protection for a basket of semi stocks, or possibly taking a levered defined risk view that the semis will fail in the next two months.