Skip to main content

Unusual Option Activity

On Friday we saw options traders continue to gain long exposure to US financials and emerging markets, all of which are likely to appreciate as a result of QE3, but also noticed traders hedging themselves against the current trend of a weakening US dollar and rising S&P 500.

We saw 101,039 XLF Oct. 17 Calls trade on the ask for $0.12 as the ETF broke out to a new 52-week high. Friday’s put-call ratio in this ETF was 0.124, showing that traders are definitely expecting a continued move to the upside. This trade profits if XLF is above 17.12 at October expiration in 32 days, a 5% move higher from Friday’s close. We also saw 54,087 EEM Oct. 43.5 Calls trade above the ask for $0.744. This trader is betting that EEM will be above 44.244 at October expiration, a 4.5% move higher from Friday’s close.

In contrast to these bullish bets, we saw a trader buy 25,890 IWM Nov. 82 puts at the ask for $1.34 and finance this by selling an equal number of Nov. 78 puts for $0.66. The net cost of this trade is $0.68, and it profits if IWM is below 81.32 at November expiration. The motivation behind this trade is likely protection for a long stock portfolio heading into the election.

Another trader sold 13,161 UUP Oct. 22 calls on the ask at 0.109. UUP, the Powershares US Dollar Index Bullish Fund, has been down for the past four weeks in a row, so this is likely a trader selling a call against a long stock position to reduce positions downside risk.

Comments

Popular posts from this blog

Morning Update

Yesterday JC Penny reported what some are calling “The Worst Quarter in the History of Retail.” The company reported a quarterly loss of $2.51 per shares and that revenue dropped 24.8%. Revenue at stores open for at least a year fell 31.7% and customer traffic dropped 17% last quarter following a 10% decrease in third quarter. Not surprisingly these dismal numbers spurred option traders to make some large bearish bets on the stock. The biggest was the purchase of 30,000 May 16 puts for $1.57 with the stock at 17.50. This trade will be profitable if JCP is below 14.43, 17.5% lower, by May expiration. One of the biggest concerns investors should have in JC Penny’s cash supply. In November they told investors that they would end the year with $1 billion in cash, but ended up with only $930 million. Wednesday they then told investors that they had delayed $85 million in payments to their suppliers until the early part of the first quarter. This is another red flag that the company is run...