Option Activity Alert: SH, APC, BCSI, SNV

SH – ProShares Short S&P500 ETF – Call buying on the ProShares Short S&P500, an exchange-traded fund that seeks daily investment results that correspond to the inverse of the daily performance of the S&P 500 Index, indicates options traders expect the pullback in the market to continue through February expiration. The massive run up in stocks since September 2010 drove the ProShares Short S&P500 ETF to a 52-week low of $42.63 last Friday. But, shares in the fund have started to climb with rising fears over dampening economic growth, pushing the price of the underlying up 0.55% today to $43.21 as of 12:15pm in New York. Bearish players picking up call options foresee shares in the fund rising, and consequently the S&P 500 Index falling ahead of February expiration. More than 6,790 calls changed hands at the February $45 strike on open interest of just 978 contracts. It looks like the majority, or roughly 5,140 of the calls, were purchased for a premium of $0.20 a-pop. Investors purchasing the call options make money if shares in the fund rally another 4.6% to surpass the effective breakeven price of $45.20 ahead of expiration day next month. Total volume in options traded on the ProShares Short S&P500 has climbed to 9,083 in early afternoon trade today, which is substantial compared to the 14,880 lots of overall previously existing open interest on the fund. Options implied volatility on the ETF has inched up 5.1% to 16.14% as of 12:20pm.

APC – Anadarko Petroleum Corp. – Shares of the oil and gas exploration and production company are currently down 1.90% to stand at $75.00 as of 11:10am in New York, but it looks like one optimistic options player is taking advantage of the pullback by placing a bullish bet on the stock in May contract. Anadarko is scheduled to report earnings for the fourth quarter after the market closes on January 31, 2011. The debit call spread strategy employed on APC this morning builds upon a nearly identical one established at the same May contract strikes recently. The APC-bull picked up 5,000 calls at the May $85 strike for a premium of $3.05 each, and sold the same number of calls at the higher May $95 strike at a premium of $1.04 apiece. Net premium paid to initiate the spread amounts to $2.01 per contract. Thus, the trader is positioned to make money should shares in Anadarko Petroleum surge 16.0% over the current price of $75.00 to surpass the effective breakeven point on the spread at $87.01 ahead of May expiration day. Maximum potential profits of $7.99 per contract are available to the trader in the event that shares in the oil company jump 26.7% to exceed $95.00 before the calls expire in May.

BCSI – Blue Coat Systems, Inc. – The network-gear maker attracted put players right out of the gate again this morning, but it looks like investors are placing contrarian trades on Blue Coat Systems today despite the more than 9.05% drop in the price of shares to $27.46 in the first half of the session. BCSI was cut to ‘underperform’ from ‘neutral’ with a target share price of $24.00 from $32.00 at Bank of America Merrill Lynch today. On Wednesday morning, bearish put buyers scooped up 1,140 puts at the February $29 strike at a premium of $0.95 apiece and some 850 puts at the February $31 strike for a premium of $1.75 per contract. Traders long the puts are holding far more valuable contracts this morning, with premiums up to an asking price of $2.55 on the February $29 puts, and up to $4.10 apiece on the higher February $31 strike options. Other profit-seeking investors initiated a different strategy using longer-dated put options in the July contract. It looks like traders sold 1,236 puts at the July $25 strike to pocket an average premium of $2.23 per contract. Put sellers keep the full premium received on the transaction as long as Blue Coat’s shares exceed $25.00 through July expiration. Approximately 1,674 puts changed hands at the July $25 strike by 11:05am on zero lots of previously existing open interest at that strike. Investors short the put options are apparently happy to have shares of the underlying stock put to them at an effective price of $22.77 each in the event that the puts land in-the-money at expiration.

SNV – Synovus Financial Corp. – The financial services firm popped up on our scanners at the start of the session after one bullish investor sold a large chunk of long-dated put options in the August contract. Shares in Synovus Financial are lower by 1.4% on the session to stand at $2.79 as of 11:30am in New York. The Columbus, GA-based company is slated to reveal earnings for the fourth quarter ahead of the opening bell one week from tomorrow. Investors exchanged more than 5,200 puts at the August $2.5 strike within the first 5 minutes of the trading session on previously existing open interest of just 715 contracts at that strike. It looks like the majority of the volume was generated by one trader observed selling 5,000 of the put options for a premium of $0.30 each. The put seller walks away with the full premium in his pocket if SNV’s shares exceed $2.50 through August expiration. The investor responsible for the transaction is on the hook to potentially have 500,000 shares of the underlying stock put to him at an effective price of $2.20 each should the puts land in-the-money at expiration in August. Synovus Financial Corp.’s overall reading of options implied volatility is up 20.2% to stand at 72.13% just before 11:40am.

About Andrew Wilkinson 1023 Articles

Affiliation: Interactive Brokers

Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.

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