Bullish Flow

Some investors are bottom fishing in beaten down names after the recent market sell-off, but rather buying shares, they’re buying calls and call spreads. For example, Micron Technology (MU) had suffered a one-month 35.1 percent slide and was probing new 52-week lows prior to today. Shares are up 7 cents to $5.32 today and morning trades in the chipmaker include a Jan 7.5 – 10 call spread, apparently bought at 24 cents, 1500X. The spread has traded multiple times and volume in both contracts is more than 2,500. If bought at 24 cents, this spread has an upside breakeven at $7.74 at the expiration, or 45.5 percent above current levels in five months. That seems somewhat farfetched. Keep in mind, however, MU was trading for more than $10 less than three months ago.

Green Mountain Coffee Roasters (GMCR) shares tumbled 18.8 percent last week and are trading up $2.75 to $86.83 Monday morning. Recent options trades in the coffee producer include an apparent risk-reversal. In this combo, the investor bought 1425 October 90 calls at $7 and sold 1425 October 75 puts at $4.65. A $2.35 net debit was paid and, since volume exceeds open interest in both contracts, this looks like a new bullish position in anticipation of continued strength in GMCR through the October expiration, which is in 60 days. If shares fall and stay below $75 through the expiration, they could face assignment on the puts and be asked to buy the stock at $75 per share.

Bearish Flow


Western Digital (WDC) is up 44 cents to $26.85 and a noteworthy options trade in the storage device maker is a ratio spread, in which the investor apparently sold 4,850 September 28 puts and bought 10,185 September 25 puts. The activity looks like a roll, or closing out a position in September 28 puts opened two weeks ago when shares were trading for more than $29. WDC, which was downgraded to Sell at Standard and Poor’s equity Thursday, is down 8.3 percent since that time and the Sep 28 puts are in-the-money. The strategist is likely closing the Sep 28s, but keeping a bearish position open by purchasing a block of out-of-the-money September 25 puts.

SPDR 500 Trust (SPY) is up $1.04 to $113.68 and SPY Weekly 110, 109 and 114 puts are the most actively traded options through midday Monday. Weekly 110 puts have traded 64,133 contracts. Volume in the 109s is 50,000 and 46,800 SPY Weekly 114 puts have changed hands. SPY, which holds the S&P 500 names, has suffered four weeks of losses and some investors are possibly taking positions in the at-the-money and out-of-the-money weekly puts on SPY amid concerns about additional losses this week as well. Weekly options are short-term contracts that expire at the end of each of week. The current ones expire on 8/26.

Unusual Volume


CREE options volume is running 2.5X the (22-day) average, with 75,000 contracts traded and call activity accounting for 51 percent of the volume.

Lennar (LEN) options volume is 4X the average daily, with 41,000 contracts traded and put volume representing 98 percent of the activity.

Xerox (XRX) options volume is running 2X the average daily, with 25,000 contracts traded and call volume representing 58 percent of the total volume.

Increasing options activity is also being seen in Collective Brands (PSS), LSM, and iShares Germany Fund (EWG).

Implied Volatility Mover


Williams Companies (WMB) implied volatility is moving higher amid active trading in the options on the natural gas producer. Shares are down 39 cents to $24.34 and in the midst of a four-day 12.4 percent losing streak. Total options volume through midday includes 12,000 calls and 9,200 puts. Meanwhile, implied volatility is rallying 18 percent to 78. It’s not clear what’s driving the action because there are no headlines on Williams Companies recently.

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