Market Action for Monday March 28th 2011

 

Bullish Flow
 
Eastman Kodak (EK) options are seeing heavy trading for a second day. As noted in the previous midday report, April 4 calls in EK were heavily traded Friday. Today, shares are up 32 cents to $3.72 on news the ITC has agreed to review a previous patent ruling involving Apple and Research in Motion. Shares rallied on the news and options volume in EK though midday includes 49,000 calls/11,000 puts, which is 4X the average daily volume for the name. April 4 calls, which are now 28 cents out-of-the-money, are again the most actives. 27,700 traded. The top trade is a 5,000-contract block at the 22-cent asking price. April 4.5 calls, April 3.5 puts, and April 4 puts are seeing active trading as well.
 
MEMC (WFR), a silicon wafer maker, is trading down 15 cents to $12.76 and today's options volume includes 8,400 calls/660 puts. April and May 13 calls are the most actives and includes some spread trading. The spread (buying May and selling April) traded at 49 cents, 300X in morning action. Volume in both contracts is now more than 3,800. This might be rolling activity, or closing out April 13 calls, which are 24 cents out-of-the-money and expire in 18 days, to open new bullish positions in the May 13 call options.
 
Bearish Flow
 
Wells Fargo (WFC) shares lose 15 cents to $31.79 and a block of 18,700 January 35 calls trades at $2.03 this morning. The market was $2.03 to $2.07 and it appears that an investor sold the position. More than 20,000 contracts traded. The contract is 10 percent out-of-the-money and open interest is 73,761, which is currently the biggest open position in Walls Fargo. Therefore, it's possibly that a bullish position is being liquidated on diminishing hopes for a rally beyond $35 in WFC shares through January 2012.
 
A noteworthy spread trades in the SPDR 500 Trust (SPY) Monday morning. Shares are up 28 cents to $131.58 and the investor paid 42 cents for the April 122 – 127 put spread, 40000X. That is, they bought a block of 40000 April 127 puts and sold a similar block of 40000 April 122 puts at 21 cents. It's a bearish short-term bet, as the max pay-off happens if shares fall to $122 through the April expiration, which represents a 7.3 percent market decline in 18 days. An institutional investor looking for a portfolio hedge probably initiated the put spread.
 
Implied Volatility Movers
Walter Investment Management (WAC) implied volatility is higher, as shares fall 9.9 percent to $17.38 on news the company is acquiring Green Tree Credit Solutions. As part of the deal, WAC will issue 1.8 million shares and take on $20 million in debt. Shares fell on the news and options volume includes 4,140 calls and 3,500 puts. September 20 calls and 17 puts are the most actives. Implied volatility is up 26 percent to 29.
 
Unusual Volume
 
Harmony Gold (HMY)) options volume is running 21X the (22-day) average, with 32,000 contracts traded and call volume accounting for about 99 percent of trades.
US Airways (LCC) options volume is 2.5X the average daily, with 32,000 contracts traded and call volume representing for 98 percent of the activity.
Hartford (HIG) options volume is running 3X the average daily, with 22,000 contracts traded and call volume accounting for 96 percent of the activity.
Increasing options activity is also being seen in Digital River (DRIV), Marriott (MAR), and Ensco (ESV).
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