MorningWord 1/5/17: Blackstone (BX) – Private Gathering

by Dan January 5, 2017 9:39 am • FREE ACCESS

Banks have been the star performers among U.S. stocks since the election with the 30%+ gains in stocks like Goldman Sachs (GS) and JP Morgan (JPM) accounting for nearly a third of the Dow Jones Industrial Average’s 10% gains since November 9th. The bullish assumption is that banking de-regulation, rates trending higher, repatriation of overseas cash driving increased capital market activity and increased m&a activity all mean banking profits. That should all be great for U.S. financial institutions in particular who are well capitalized relative to most of their foreign peers.

Yesterday the private equity behemoth Blackstone Group (BX) decided to join the party. And with good reason. I expect 2017 will see plenty of “exits” for venture capital and private equity firms. They have been waiting for the right environment to sell portfolio companies to competitors or bring them public.

Shares of BX were up 4.5% yesterday, approaching a massive 1 year technical resistance level at $30:

BX 2yr chart from Bloomberg

Call options volume exploded, which is what originally got me looking at the stock, with calls outpacing puts 6 to 1, and call volume 3x average daily. Half of that call volume came in one trade where a trader bought 28,000 March 32 calls up to 80 cents.


With the stock approaching an important technical level, that trade on the surface might have been viewed as massively bullish, a trader playing for a breakout over the next couple months, but after a little digging it might have other implications.These calls look to be bought to close, vs existing open interest of 36,665.  Back on Dec 9th, it appears these calls were sold to open 20,774 at 60 cents and 7188 at $1:


I suspect this was a trader overwriting their stock, and now with more than 2 months to expiration, and the stock in a fairly similar spot taking the lid off of the trade. That’s pretty bullish thinking, with what seems like exectations of a breakout that the trader doesn’t want to stand in the way of.

I’ll offer our usual disclaimer when looking at unusual options activity. Without intimate knowledge of the trade, the trader’s intention, and the trader’s track record its nearly impossible to glean useful tradeable info, aside from sentiment. Sure the stock looks poised to breakout, and the unusual activity got me looking at the story. But I also don’t want to create a false narrative in the stock based on those two inputs. But I will use that information to do a bit more work on the story (valuation, evaluate indefinable events like earnings etc) and possibly create a trading thesis. Stay tuned.