Monday’s Notable Options Activity: $QIHU, $XLF

by Dan March 31, 2015 8:27 am • Commentary

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

1. XLF – when the etf was 24.33 a trader paid .21 for 68,000 April 24.50 calls to open (81,000 ended up trading on the day), or $1.4 million in premium.  Break-even on the trade is at $24.71, up 1.5%.  When I initially looked at the trade my first inclination was that the calls looked dollar cheap, with the break-even below where the stock was trading a week ago.   I suspect the trader is eyeing Q1 reporting for bank stocks where 8 of the top 10 holdings in the XLF set to report in April expiration.  A quick look at the 1 year chart shows the prior 52 week and multi-year high of about $25.10 in late December, which should serve as meaningful technical resistance in the near term:

XLF 1yr chart from Bloomberg
XLF 1yr chart from Bloomberg

Lets consider the risk / reward of this trade, obviously the maximum risk is the 21 cents paid for the calls, with what I think is the likely to possibly make 40 cents, if the etf were to re-test the prior highs of $25.10.  SO basically risking one to possibly make two, in trader speak I would say that the risk reward is fair.

As always with unusual options activity its hard to know what the trader’s intent is, with no shortage of possibilities, maybe the trader was looking for dollar cheap premium to leverage a long, or maybe they are short a boatload of the etf and looking to set a stop to the upside.  The point is simple, unless you know the intent of the trade first hand in my mind it makes little sense to follow blindly.

2. QIHU –the Chinese internet outfit which has been blasted over the last year, down 50% from the 52 week highs, and down 12% in 2015 saw an opening call buyer. When the stock was $51 a trader bought 10,000 of the June 60/70 call spreads for 1.47, this trade breaks-even at $61.47 up 20%.   The stock closed down 2% from the point when this trade to go up, causing the spread to close at 1.15, resulting in a $320,000 loss from the initiation point just hours before.  The trader is risking $1.47 million to possibly make up to $8.53 million if the stock is between $61.47 and $80 on June expiration.