Here is some untied options trades that caught our attention in today’s trading:
DXJ: the etf that tracks Japanese equities on a currency hedged basis saw what appears to be a roll up in calls. When the etf was $49.56 a trader sold to close 16,300 Jan 49 calls at $1.41 and bought to open 16,300 Jan 51 calls for 61 cents to open. This new call position breaks-even at $51.61, up 4% from the trading level in about 6 weeks. The etf is now back to unchanged on the year, approaching key long term technical resistance at $50:
F: the largest trade in terms of contracts today was a buy of 200,000 Ford March 15 calls for 11 cents to open when the stock was trading $13.02, or $2.2 million in premium. These calls break-even up 16% from the trading level at $15.11 on March expiration. The options market is only suggesting about a 14% chance these calls will be in the money on March expiration. The choice of strikes is interesting as the stock is currently at the mid-point of its 16 month range, between what looks like an epic double bottom at $11 and the gap level from its then highs in Oct 2015:
IWM: Since the Nov 8th election, small cap stocks, as measured by the IWM, have been the undisputed champion by way of performance of equity indices, up a whopping 15%. It appears that one trader rolled up some near term protection or possibly an outright bearish bet. When the IWM was trading $134,39 at 10am, 60,000 of the Dec 16th 129 puts were sold to close at 23 cents and 60,000 of the Dec 16th 133 puts were bought to open for 93 cents. Why roll up puts in the same expiration for just one week? Well, let’s not forget the Fed’s near certainty of a 25 basis point rate increase at next week’s meeting, is there the potential for more hawkish guidance about rated increases in 2017 for a Fed that has been widely criticized by the president elect? $130 looks like a pretty reasonable downside target if the market had a reason to pull back next week, which happens to the breakout levels to new all time highs last month:
IYR: sectors like REITs with high dividend yields have been some of the worst performers over the last month as bond yields have risen steadily on the prospects of greater economic growth and swifter pace of rate increases by the Fed. The iShares REIT etf, the IYR is down about 10% from its 52 week highs made in early August, now trading at a one month high. At least one trader appears to be playing for a move higher towards its early Sept breakdown level of $80. When the etf was $76.58 a trader bought the Feb 68/80 risk reversal 12,000x, paying 12 cents for the structure. Selling to open 12,000 Feb 68 puts at 54 cents and buying to open 12,000 Feb 80 calls for 66 cents. This trade makes money on Feb expiration above $80.12, has a loss of 12 cents between 68 and 80, and the worst case scenario is that the trader would be put 1,200,000 shares at 68 and suffer losses below.
To my eye these levels make sense, as $68 should serve as support. While $80 seems like a reasonable upside target, it might also serve as technical resistance: