Stocks quoted in this article:
The 20 stocks below have attracted the highest options volume -- in the front three-months' series -- during the past 10 trading days. Data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. Three names of notable interest this afternoon are Facebook Inc (NASDAQ:FB), J.C. Penney Company, Inc. (NYSE:JCP), and Yahoo! Inc. (NASDAQ:YHOO).
J.C. Penney Company, Inc. is in the red again today following more negative attention on Wall Street, but has so far avoided notching another new multi-decade low. Among the most active strikes in the beleaguered retailer's options pits are a number of short-term, in-the-money puts. On the flip side, Yahoo! Inc. has notched its highest price since February 2006, and 30-day, at-the-money implied volatility has spiked to an annual peak. This hasn't stopped speculators, however, as call volume is running at more than twice the usual pace, while put activity is triple what's typically seen. Finally, here is a look at some interesting bullish activity transpiring today on Facebook Inc.
FB is sitting slightly below breakeven at $50.04, and is on pace for its fourth consecutive close above the $50 level. More than 460,000 contracts have changed hands today, an 18% markup over normal intraday options volume. For the sake of comparison, roughly 310,000 calls have been exchanged, versus 150,000 puts.
The two most active strikes, however, are the December 65 and 70 calls, which have both seen more than 25,000 contracts trade. Volume exceeds open interest at both strikes, suggesting that new positions were opened -- a theory that data from Trade-Alert substantiates.
In fact, it appears that one trader was responsible for nearly all of this volume. Shortly before 11:00 a.m. ET, symmetrical blocks of 25,000 contracts traded at these out-of-the-money strikes. The 70-strike calls crossed the tape at the bid price of $0.74 per contract; the 65 calls were executed at the ask price of $1.19 each. In short, it looks as though a large-scale trader opened a long call spread for a net debit of $0.45 per pair of contracts.
Breaking down the mechanics of the trade, the spread buyer will achieve the maximum profit at expiration if FB is sitting squarely at $70. At this point, the short call expires worthless, and the long call has an intrinsic value of $5. After subtracting the initial net debit, the total potential gain is $4.55 per spread. The spread is in profitable territory with FB above the breakeven mark of $65.45 (long strike plus net debit), and losses are capped at 100% of the premium paid if FB is trading at or below $65 when the calls expire. FB needs to gain 30.8% to reach breakeven for this spread, and rally 39.9% to hit the upper strike price. Expiration is almost three months away, however, and over the past three months, FB shares have roughly doubled in value.