Stocks quoted in this article:
The 20 stocks listed in the table below are the S&P 400 MidCap Index (MID) components that have attracted the highest total options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One name of notable interest today is network equipment maker JDS Uniphase Corp (NASDAQ:JDSU), which has been a target among call buyers.
Since its post-earnings bear gap on Aug. 13, the shares of JDS Uniphase Corporation have recovered 9.4% to flirt with $11.92. The stock is now struggling to topple the $12 level, which emerged as a technical speed bump in late July and early August. Option traders remain optimistic, however, judging by recent buying trends.
On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open more than 42 JDSU calls for every put during the past two weeks. The resulting 10-day call/put volume ratio of 42.38 stands just 3 percentage points from a 52-week peak, implying that option buyers have initiated bullish bets over bearish at a near-annual-high clip recently.
Echoing that, JDSU saw roughly 16,000 calls change hands on Tuesday -- more than three times the norm, and more than 22 times the number of puts traded. Most active was the out-of-the-money October 13 call, where 7,237 contracts crossed, primarily on the ask side, suggesting they were bought. Plus, open interest jumped at the back-month strike overnight, confirming the initiation of fresh positions.
By purchasing the calls at a volume-weighted average price (VWAP) of $0.20, the buyers will profit if JDSU is perched atop $13.20 (strike plus VWAP) at the close on Friday, Oct. 17, when the options expire. Profit potential is theoretically unlimited north of breakeven -- which represents territory not charted since late April -- and risk is capped at the initial premium paid, should JDSU remain south of the strike through the option's lifetime.
While JDSU's 30-day at-the-money implied volatility jumped 5.3% to 29.2% yesterday -- pointing to a growing demand for short-term options -- the stock's near-term contracts can still be had at a relative discount. The equity's Schaeffer's Volatility Index (SVI) of 29% stands just 8 percentage points from an annual low, suggesting JDS Uniphase Corp's (NASDAQ:JDSU) front-month options are historically inexpensive at the moment.