Tuesday’s Notable Options Activity: $AAPL, $BABA, $EBAY, $FB, $UUP

by Dan March 18, 2015 6:59 am • Commentary

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

1. AAPL – when the stock was $126.45, a trader paid 1.58 for the Jan16 130/150 1×2 call spread,  7,700 by 15,400. This trade breaks-even at $131.58,with a max gain of $17.42 if the stock is at $150 on Jan expiration. The payout trails off between $150 and $168.42, with losses above that. This is the sort of trade can be very useful to add yield and leverage to an existing long stock position.

2. EBAY – options volume ran more than 2x avg daily, with one large bullish trade dominating the flow. When the stock was 59.40 a trader sold to open 10,000 Oct 52.50 puts at 1.68 and bought 10,000 of the Oct 62.50/70 call spread for 2.08, so the package cost 40 cents. On the upside breaks even at 62.90, with max gain of 7.10 at 70 or higher,. The worst case is stock is 52.50 or lower and they lose the premium paid plus one for one on the stock.  18,700 ended up trading in all three legs of this trade. 

3. FB – saw a large block of out of the money calls bought in May. When the stock was 79.41, up 1.8% on the day, a trader paid 1.13 for 6,000 May 87.50 calls. That breaks-even up 11.5% in 2 months.  Later in the afternoon, when the stock was 79.50 a trader sold to close 1500 May 80 calls at 3.60 and bought to open 1500 May 75 calls for 6.60, apparently rolling down a bullish view.  As I stated in my post yesterday (Name That Trade – $FB: Poking Around) about FB’s long drawn out consolidation:

This lack of movement is reflected in short dated options prices, as 30 day at the money implied vol (blue below) nears all time lows. But the problem with calling options prices cheap is that 30 day realized vol (white below) is at 21, meaning the stock is not moving and therefore owning options can be a painful endeavor

FB 1yr 30 day at the money IV vs Realized Vol from Bloomberg
1yr chart of 30 day at the money implied vol (blue) vs realized vol (white)

4. UUP – the Powershares US Dollar etf sees a massive put purchase, when the etf was 26.29 a trader paid .12 for 250,000 June 25 puts to open. The premium on this trade is $3 million, and breaks even at $24.87 down 5.4%, a level where the etf traded about a month ago

5. BABA – in front of Tuesday’s lock up expiration it looks like a trader rolled down some protection, possibly selling protective puts and opening a collar. When the stock was 84.65 a trader sold to close 9,000 April 82.50 puts at 2.22, and sold to open 9,000 July 105 calls at 1.10 and bought to open 9,000 July 75 puts for 2.60.  If this in fact was a collar against 900,000 shares of stock, then the investor will have gains of the stock up until 105, and losses to 75, and protection below (excluding the premium paid for the overlay.)