Here are some apparently directional untied options trades that caught our attention in today’s trading:
While WTI Crude has been fairly range-bound, trading between $40 and $50 since late April, the commodity is finding some technical resistance at the uptrend that has been in place since the February lows in front of Wednesday’s OPEC meeting where expectations for a production cut have built in the last two weeks:[caption id="attachment_68462" align="aligncenter" width="600"] Crude YTD from Bloomberg[/caption]
XOP: it appears that at least one trader sought short term protection with a three legged hedge position for this week, covering the OPEC meeting. When the S&P Oil & Gas etf (XOP) was $39, a trader bought what is called a put spread collar likely protecting 1 million shares, selling 10,000 Dec 2nd 41 calls at 59 cents ($590,000 in premium) and buying 10,000 of the Dec 2nd 38.50 / 35.50 put spread for 84 cents ($840,000 in premium), resulting in a net debit of 25 cents ($250,000 in premium). This structure offers protection between 38.25 and 35.50 of up to $2.75 ($2.75 million in premium), with no protection below 35.50 on Friday’s close. The trader would have gains of the stock between $39.25 and $41, and if the XOP is 41 or above the trader would be called away on Friday’s close, or have to cover the short calls to keep the long position intact.
The chart of the XOP is fairly interesting, having been temporarily rejected at its 1 year highs with apparent support near the uptrend from its February lows in the mid $30s, down where the protection on the trade just described runs out:[caption id="attachment_68463" align="aligncenter" width="600"] XOP 1yr chart from Bloomberg[/caption]
HAL: in a year when regulators rejected Halliburton’s $35 billion acquisition offer for Baker Hughes, causing them to pay them a $3.5 billion break up fee, shares of HAL are up 45% year to date, and up 77% from its 52 week lows made in January. Put volume today was 2.5x that of calls in HAL today, with the largest trade of the day an opening buyer of 5,000 Dec 49 puts for 1.45 when stock was 49.28, This trade could be protection against a 500,000 share long position. These puts break-even at 47.55, down 3.5% from the trading level.
CIEN: the networking equipment company reports fiscal Q4 results on Dec 8th before the open. The options market is implying about an 8% one day move, which is shy of the 4 qtr average move of about 14%. Shortly after the open when the stock was $21.68 a trader bought to open 10,000 of the Dec 22 puts for $1.32, which break-even in a little more than 2 weeks at $20.68.