Unusual Options Patterns For What Lies Ahead (AA, BRCD, HAL, VVUS, UNG, SIRI)

Posted in Options 
October 30th, 2010

We have scanned the options trades for highly unusual options trading patterns from Friday to see which will be carryover issues into next week.  Some may seem logical, while some may seem odd.  Friday’s highly unusual options trading that will carry over into next week was seen in Alcoa, Inc. (NYSE: AA), Brocade Communications Systems, Inc. (NASDAQ: BRCD), Halliburton Company (NYSE: HAL), VIVUS Inc. (NASDAQ: VVUS), and in the United States Natural Gas (NYSE: UNG).  SIRIUS XM Radio Inc. (NASDAQ: SIRI) even made the list here ahead of next week’s earnings.

Alcoa, Inc. (NYSE: AA) was a mystery. It traded almost its entire open interest in the NOV $13 and $14 CALLS on Friday with more than 55,000 contracts traded just between the two contracts.  Shares rose nearly 4% to $13.14 and the 39+ million shares came to more than 150% of normal share volume.

Brocade Communications Systems, Inc. (NASDAQ: BRCD) saw its stock rise 3% Friday to $6.35 and volume more than doubled to over 35 million shares.  There were more than 19,000 PUTS that traded and a whopping 58,000+ CALLS that traded hands.  As we have covered before at 247WallSt and here, this continues to be takeover speculation.

Halliburton Company (NYSE: HAL) continues to see very active PUT and CALL volume trading as investors, traders, and speculators are trading in out-of-the-money contracts merely for upside and downside exposure if the Deepwater Horizon disaster comes back on it or not after the findings hit the stock so hard this last week.  Nothing specific here, but no resolution is there either and this will remain a highly volatile name ahead.

VIVUS Inc. (NASDAQ: VVUS) was no shock to see on the options volume explosion list.  However, more than 22,000 PUT contracts traded and more than 71,000 CALL contracts traded.  We covered the news and gave analysis in depth over at BioHealthInvestor.com and it seems as though the thought will be an approval is still possible despite the FDA initial denial.  Options in December and January will be the real hurdle months ahead.   A 26% gain to $7.75 was on more than 27 million shares, more than 8-times normal trading volume in the shares.

The United States Natural Gas (NYSE: UNG) may be perhaps one of the worst ETFs created due to performance and time erosion as futures contracts and the roll dates would force this to drift to zero if the nat-gas market went static and saw little price changes.  So, when you see 24,073 of the DEC-2010 $7 CALLS trade on a day when the shares are at $5.82 and low volume, you have to wonder.  Someone is betting on a very cold winter by the looks of it.  The DEC-2010 $7 CALLS had a prior open interest of only 6,432 contracts.

SIRIUS XM Radio Inc. (NASDAQ: SIRI) is perhaps more curiosity than it is highly unusual options trading activity off the charts.  Still, a $1.50 stock by many rights is nothing more than a call option in its own right.  Earnings are due this coming week (preview here) and here are the top contracts traded over the coming three months:
NOV-10    Vol.    OpInt
$1.50C    3,634    19,076
$2.00C    4,190    727
$1.50P    1,012    6,054
$2.00P    3,013    250
DEC-10    Vol.    OpInt
$1.00C    1,575    17,505
$1.50C    3,940    31,993
$2.00C    2,102    4,385
JAN-11    Vol.    OpInt
$1.00C    1,128    35,237
$1.50C    2,144    26,394

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JON C. OGG

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