This Morning’s Bullish Trading
MGIC (MTG), a credit insurance company, is up 18 cents to $2.98 in active trading of 20.5 million shares in the wake of its earnings report. Meanwhile, options volume on the stock is is running 6X the daily average. 8,800 calls and 17,000 puts traded in the name. Most of the put activity is due to one trade, in which the investor apparently sold 5,000 Mar 2.5 puts on the stock at 10 cents per contract and bought 10,000 Mar 2 puts for 2 cents each. The 1X2, for 6 cents, is possibly a closing trade on the heels of the earnings report. That is, the investor had initiated the trade on concerns about a possible post-earnings drop in MTG (possibly against a position in shares) and is taking the position off now that the earnings risk has passed. Beyond that, most of the flow in MGIC today has been on the call side of the options chain. March 2.5 and 3 calls are the most actives.
An interesting diagonal spread trades in Constellation Brands (STZ) Thursday morning. Shares are down 68 cents to $43.97 and the investor bought 15,000 April 47.5 calls for the stock for $1.95 and sold 15,000 July 52.5 calls at 85 cents each. According to a source on the exchange floor, this Apr 47.5 – July 52.5 call spread was bought for $1.10 and, since volume exceeds open interest, it appears to be a new position. An investor is possibly buying the spread on the view STZ has upside potential beyond $47.5 through the April expiration, but a move to more than $52.5 by mid-July is less likely.
This Morning’s Bearish Trading
The largest block of equity options so far this week traded on Ford Motor (F) Thursday morning. Shares are up 8 cents to $12.84 and a 73,000-contract block of January $15 calls traded on the automaker at 50 cents per contract when the market was 50 to 53 cents. More than 75,000 traded on the day. Open interest is 81,663 and so the hefty block of calls might be a closing sale. Or, an investor is possibly writing the calls (naked), or maybe against a position in shares as part of a covered call. In either case, selling the contract, which is 17.5 percent out-of-the-money, seems to express the view that shares probably won’t rally beyond $15 through the January 2014 expiration.
JC Penney (JCP) is down $3.65 to $17.51 in very heavy trading of 27 million shares after the retailer posted earnings that fell short of expectations. Trading in the options on the stock is very heavy today. 111,000 puts and 61,000 calls so far. Nine of the ten most actives are puts. March 16s are seeing the most volume. 11,375 traded. January 8, Weekly 18, and April 16 puts are the next most actives in JC Penney today.
JC Penney (JCP) options volume is running 2.5X the (22-day) average with 139,000 contracts traded and put volume accounting for 64 percent of the volume.
Groupon (GRPN) options volume is 3X the average daily with 102,000 contracts traded and call volume representing 52 percent of the activity.
Molycorp (MCP) options volume is running 2X the average daily with 38,000 contracts traded and put volume accounting for 51 percent of the activity.
Increasing options activity is also being seen in Pandora (P), Sears Holdings (SHLD), and Texas Instruments (TXN).
Implied Volatility Mover
Implied volatility in the options on rare earth materials producer Molycorp (MCP) is moving higher amid active trading in the options. The stock is down 7 cents to $6.17 and falling to 52-week lows on heavy turnover of 10.9 million shares after the company announced a delay to its earnings release and earnings call. 46,000 options traded in the name, evenly split between puts and calls. March 6 puts and 7 calls are the most actives and implied volatility is up 11.5 percent to 87.