Volume Spike Investor

The market is down in the U.S. on a holiday-shortened trading session.  Still, there is active trading in the Irish banks today.  The Bank of Ireland (NYSE: IRE) was down much worse but shares are now down about 2.6% at $1.54 after a low of $1.46 this morning.  Allied Irish Banks plc (NYSE: AIB) is now flat at $1.01 after having traded briefly at $0.95.  Early pre-market indications showed both of these banks down closer to 10%.  In short, any small losses here may actually be considered a win.

AIB has actually seen over 4.5 million shares trade after just 45 minutes this Friday and an average day’s volume is only about 6.3 million shares.  IRE has already gone 150% of normal trading with over 9.6 million shares traded in just 45 minutes since the open versus an average day’s volume of almost 6 million shares.

The difference here is that U.S. markets were closed for Thanksgiving on Thursday.  The only giving thanks in local trading in Ireland on Thursday while Americans were eating turkey was that Ireland still had plenty of potatoes.

JON C. OGG

Amazon.com Inc. (NASDAQ: AMZN) is up on its own today, but the stock is seeing very elevated trading activity in its weekly options which expire this Friday.  The trade is an obvious bet on strong Thanksgiving Day and Black Friday sales figures being sent through the Amazon.com sites.  An unofficial 4:00 PM EST close of $177.11 had the stock up $8.91 or 5.3%, but you need to see the bets on the weekly-expiration options as the true tell:

NOV25$    Volume    OpInt
170.00    4,179    3,680
175.00    11,777    2,126
180.00    13,788    1,555
185.00    2,239    759

What is odd is that there is the theory of a Cyber-Monday as workers go back to work and have higher speed internet access at their fingertips to conduct holiday shopping.  maybe we’ll see a repeat on options expirations on the week on Monday.

The December Call options were elevated in trading volume as well:
DEC11$    Volume    OpInt
160.00    1,471    3,031
165.00    1,843    4,347
170.00    8,657    10,501
175.00    7,881    6,154
180.00    5,336    3,139
185.00    2,317    2,563
190.00    2,291    1,628
195.00    1,297    1,247
200.00    1,744    2,020

JON C. OGG

Out of the money calls are often a Hail Mary, and out of the money calls on the volatility index  is a derivatives bet on top of a derivative bet that the markets could head south or that wild price fluctuations will be seen.

The stahndout options trade today is hard to judge so we are not going to call it a new bet nor a  close-out trade.  Options traded on the VIX, the CBOE S&P 500 Volatility Index…. There have been 21,272 contracts trades of the FEB-2011 $35 CALLS versus an open interest of almost 49,000 contracts.

We have also seen over 2,100 of the FEB $25 CALLS and 10,000 of the FEB $27.50 CALLS trade today.

JON C. OGG

Electronic Arts Inc. (NASDAQ: ERTS) has what appeared to be extremely unusual options trading volume on the surface.  It may just be a close-out trade.  An options screen showed that the JAN-2011 $20 CALLS showed a whopping 75,877 contracts traded ay 12:15 PM EST, the equivalent of more than 7.5 million shares on a fully leveraged basis.  After looking deeper there is also an open interest listed as being 90,053 contracts  and the last trade was on the bid-side of the market at $0.07 per contract.

Shares are down 2.6% at $15.01 and trading volume of 2.8 million shares at mid-day is not anywhere close to representing unusual trading volume in the stock.  The 52-week trading range is $14.06 to $20.24 and average volume per day is more than 5.3 million shares.

We’d love to have a great flag here, but unfortunately the after-review does not scream anything more than what is noted.

JON C. OGG

El Paso Corporation (NYSE: EP) is down today, but not only news of its own.  It turns out the the widely reported ongoing insider trading probe is to blame.  A hedge fund called Diamondback Capital has El Paso as a key holding.  Shares saw a rapid drop today after 12 EST when word came out the Diamondback offices had been ‘visited’ in this large ongoing insider trading probe.  The bet is that even being involved in this inquiry whether truly involved or even being named could create redemptions in the fund that will require its top holdings to be sold off.

At 2:10 PM EST El Paso shares are down 2.14% at $13.74 on more than 8.1 million shares.  Average volume is 6.5 million shares and the 52-week range is $8.94 to $14.06. The 12+ million shares is worth close to $150 million, a fraction of the $9.7 billion market cap.

JON C. OGG

Last week at 24/7 Wall St. we noted how the analyst pack was chasing salesforce.com (NYSE: CRM) with higher and higher price targets despite many formal ratings being cautious to neutral.  What is interesting is that options traders are stepping in and making serious upside exposure bets to the same stock with out of the money call options.

Today’s unusual volume is now only about 10% out of the money so it might not sound as crazy as if you would have seen this trade a month ago.  The big speculative trade was in the FEB-2011 $150 CALLS where some 2,087 contracts have traded with the last trade being at $6.95 per contract, making a virtual $157.00 break-even.  These are all new positions as the open interest is listed as being only 359 contracts.

What is another standout is the FEB-2011 $180 CALLS where some 1,170 option contracts have traded against an open interest of 1,220 contracts.

JON C. OGG

Apple Inc. (NASDAQ: AAPL) is in the same boat as all other companies when it comes to options expiration happening this Friday.  By the look of the trading patterns, we are seeing a balance of options roll-dates happening with those who are making the short-dated speculative options expiration trades.  The action is in the $300 strikes for November, but traders and speculators are making their moves in various strike prices into DECEMBER.

NOVEMBER CALL & PUT trading is as follows:
CALLS    Volume    OpInt
300.00    11,481    25,039
310.00    16,723    43,953
320.00    4,918    43,994
PUTS    Volume    OpInt
280.00    1,273    24,179
290.00    5,763    34,885
300.00    14,161    41,758
310.00    3,156    21,806

DECEMBER CALL & PUT trading is as follows:
CALLS    Volume    OpInt
300.00    4,730    10,727
310.00    5,390    17,223
320.00    3,613    28,844
330.00    3,137    15,879
340.00    1,461    11,104
PUTS    Volume    OpInt
270.00    1,368    29,693
280.00    1,710    33,502
290.00    1,674    11,924
300.00    3,358    15,842
310.00    1,381    12,303

At 11:50 AM EST Apple shares are trading up 0.36% at $302.68 in what is light trading volume of 6.9 million shares.

The rule of thumb going into options expiration date is that the closest strike price tends to act as a magnet.  Whether that holds true for Apple is something we won’t try to use a crystal ball to determine.

JON C. OGG

Someone is betting on more M&A activity in the options market.  Microchip Technology Inc. (NASDAQ: MCHP) has traded 9,377 contracts of the NOV10 $34 CALLS today.  The whole open interest was only 9,170 contracts.  While far smaller, even the $35 CALLS saw 560 contracts trade versus an open interest of only 612 contracts.

If you go out to December, it is even more of a standout even if the volume is actually less.  In the DEC10 $34 CALLS, we saw 3,219 contracts trade versus an open interest of only 1,401 contracts.  In the DEC10 $37 PUTS we saw 1,166 contracts trade versus an open interest of only 903 contracts.

As far as Microchip the stock, its shares are up 0.36% at $33.67 versus a 52-week range of $25.27 to $34.38.  At 12:25 PM EST we have also seen 1,039,213 shares trade hands versus 2,697,200 for an average day’s volume.

Options may be signaling something that has not been reflected in the stock itself.  Keep in mind that Microchip Technology carries a yield of about 4% and its market cap is close to $6.3 billion.

JON C.  OGG

12:25 PM EST

A Friday afternoon and Saturday morning review of options trading often reveals some unusual patterns not always recognized during the trading day.  After looking through all of the options trading, we found very unusual options trading in Human Genome Sciences Inc. (NYSE: HGSI), Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR), Genzyme Corporation (NASDAQ: GENZ), SunPower Corporation (NASDAQ: SPWRA), Consolidated Edison Inc. (NYSE: ED), Lowe’s Companies Inc. (NYSE: LOW), and Seagate Technology PLC (NYSE: STX).  We have added color on each.

Human Genome Sciences Inc. (NYSE: HGSI) had a rough day Friday after the FDA has raised questions about its Lupus drug over safety issues.  Shares closed down 10.88% on Friday at $23.60 on 17 million shares.  Of the non-ETF options, it appears that Human Genome was the second most active stock by PUT option volume and the third most active by CALL option volume Friday.  Here is the put volume for NOV-2010 alone:
CALL$    Volume    OpInt
25.00    4,367    6,248
26.00    1,984    5,584
27.00    2,657    4,451
28.00    1,552    5,576
29.00    15,316    9,004
30.00    12,047    24,451
31.00    1,144    5,964
PUT$    Volume    OpInt
15.00    15,746    17,889
17.50    3,964    12,008
20.00    5,202    16,524
21.00    1,540    1,923
22.00    1,267    1,767
23.00    3,915    8,696

Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR) 3.7% at $31.45 on active share volume, the lowest close for Green Mountain since October 22.  The stock saw very active PUT option trading for NOV-2010 expiration, although we were told some was selling PUTS to capture some premium via a synthetic long trade.  Still, with the drop and the levels being the worst since, this activity is elevated as if something may be brewing here (no pun intended).
PUT$    Volume    OpInt
27.00    8,503    8,808
28.00    597    1,391
29.00    620    1,358
30.00    2,545    6,767
31.00    865    5,803
32.00    2,566    2,642
33.00    186    2,480
34.00    1,156    2,168

Genzyme Corporation (NASDAQ: GENZ) has action, and not favorable action on the surface. Traders appear to be betting that a breakdown comes in the Sanofi-Aventis (NYSE: SNY) merger and also that no new bidders will emerge by Christmas.  This activity is with shares at $69.84, the lowest close since August 27.  Here was the PUT volume for DEC-2010 expiration:
PUT$    Volume    OpInt
60.00    6,370    18,043
62.50    12    6,305
65.00    8,300    5,186
67.50    10    4,968
70.00    7,500    8,456

SunPower Corporation (NASDAQ: SPWRA) NOV-2010 CALLS were very active.  What is most interesting here is that this is already after earnings. Shares closed down almost 1% at $13.97, but someone is making a bet for a big move between now and this coming Friday.
CALL$    Volume    OpInt
14.00    1,244    3,320
15.00    11,439    6,890
16.00    2,469    1,347

Consolidated Edison Inc. (NYSE: ED) must have a dividend capture trade that took place.  Its annualized dividend is 4.8% today and the quarterly payout is $0.595  Shares closed at $49.74 on Friday and the NOV10 CALLS trading was as follows:
CALL$    Volume    OpInt
45.00    19,004    1,914
46.00    11,500    1,128
47.00    18,129    1,711
48.00    12,542    1,264
49.00    10,126    1,298

Lowe’s Companies Inc. (NYSE: LOW) was more active than normal with about 8,000 CALLS and roughly 6,000 PUTS both with NOV10 expiration.  With earnings on Monday, you know this is speculation and hedging going into earnings.

The Seagate Technology PLC (NYSE: STX) merger rumor and exploration of a private equity deal may have some legs back to it. Shares closed down 2.3% at $14.09 Friday.  The NOV10 $14 PUTS traded over 9,000 contracts, but the NOV10 CALLS with $14, $15, and $16 strike prices traded a combined amount just shy of 20,000 contracts.  In DEC10, the $12.50 PUTS traded 14,620 contracts versus 1,404 of the $14 CALLS, versus 3,081 of the $18 Calls, and versus 10.495 of the $19 calls.

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JON C. OGG

SIGA Technologies, Inc. (NASDAQ: SIGA) is getting crushed this morning after the Small Business Administration ruled that SIGA was “other than small”  after the U.S. Department of Health and Human Services (HHS) had announced its intention to award SIGA a contract with HHS to deliver 1.7 million courses of its smallpox antiviral for the Strategic National Stockpile.  The ruling came after a protest by Chimerix, Inc.

HHS designated the proposed contract as a small business set-aside at the time of the original solicitation in March 2009, and the ruling would render SIGA ineligible for the deal if not overturned.

The company maintains that SIGA appropriately qualified as a small business concern for this procurement and it will appeal the ruling.

SIGA Technologies is seeing a large drop in shares down 22% pre-market at $10.26 after a $13.22 close Friday.  The 52-week trading range is $4.83 – $14.38 and SIGA trades about 600,000 shares per day.  SIGA has options which trade but the PUT and CALL activity is usually low; expect that to change today.

JON C.OGG