Regular readers know that we are not fans of trading off of unusual options activity as a sole input as observers of said activity rarely have the full story of why an option was bought or sold, whether it was opening or closing, or if traded against, stock, otc options or as a hedge (read more on the topic here and here). There are obviously lots of potential moving parts, and rarely is it as clear cut as merely a bullish or bearish outright view being expressed. But that doesn’t make it useless taken as a whole.
One sort of tell of directional activity can be a roll, when a trader closes out of one option and rolls the view out in time and or in price. On Monday I got the following email from a reader (Paul):
Hi Dan! Question:CRR traded an enormous amount of call options on Monday especially when compared to its prior open interest. Take a peek at the volume, please. If you have a comment I would appreciate your thoughts.The JUL 45 traded hugely especially when compared to its prior open interest of 90 of the 45 calls.
Hey Paul, it looks like yesterday an opening buyer, as you mentioned, of the July 45 calls, 2000x, paying between 1.45 and 1.80 when the stock was between $44.02 and $44.72.It looks like the trader rolled out of the July 45 calls, selling them to close, 2,000 at an avg of 2.475 and bought to open 2500 of the July 47 calls for 1.55 when the stock was $46.25. Wow short interest is 36%, I have never looked at the name, thanks for bringing it to my attention.
As I said to Paul in my email, I had never heard of Carbo Ceramics Inc (CRR), a $1 billion market cap oil and gas services company based in Houston, but the options activity has certainly put in on my radar. And the 36% short interest is definitely of note when you consider the stock is down 70% from its 52 week highs made last July. And while many oil and gas companies are saddled with debt, CRR is not, they have $96 million in cash on their balance sheet and only $75 million in debt.
And lastly, that chart looks like a coiled spring, having based for the last couple months just above $45, holding its 50 day moving average which is rising (purple line) and above its 200 day moving average (yellow line) for the first time since late July when the stock was north of $120:
While short dated options prices are far from cheap with 30 day at the money IV at 46%, they are far closer to the 52 week lows than the January highs: