Stocks quoted in this article:
The 20 stocks listed in the table below 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 this afternoon is Twitter Inc (NYSE:TWTR).
Twitter Inc's technical troubles this year have been well-documented on the Street, but as a quick recap -- the shares are down roughly 49% in 2014, and tagged a new record low of $29.51 this past Wednesday. This trek lower pulled the equity into oversold territory, as evidenced by its Relative Strength Index (RSI) of 27. This -- coupled with a round of bullish brokerage notes -- has TWTR up around 11% from the aforementioned technical nadir, and a number of speculators in today's session are betting on this rebound to continue in both the short and long term.
At last check, roughly 66,000 TWTR calls had changed hands, representing a 38% mark-up to the intraday average, and outpacing puts by a nearly 2-to-1 margin. The most active contract is the stock's weekly 5/9 32-strike call, which expires at the end of today's session. The majority of the 10,037 contracts traded here did so on the ask side and volume outstrips open interest, indicating buy-to-open activity. Thanks to today's 2.6% pop that has the security trading at $32.74, these calls have not only moved comfortably into the money, but have also surpassed the at-expiration breakeven mark of $32.62, which is the strike plus the volume-weighted average price of $0.62.
Meanwhile, one longer-term trader honed in on the September series, utilizing calls and puts to simulate a long stock purchase on TWTR. Shortly after the open, a block of 2,500 September 27 puts was sold for $2.20 apiece, while a symmetrical block of September 35 calls was simultaneously bought for $3.20 each. Volume exceeds open interest at each strike, making it safe to assume new positions are being initiated. Summing it all up, it appears this trader established a split-strike version of the synthetic long strategy, also known as a risk reversal, for a net debit of $1.00 per pair of contracts.
This two-legged spread parallels the purchase of a stock position in that gains are theoretically unlimited to the upside, should TWTR rally above the breakeven mark of $36 (bought call plus the premium paid) over the next four-plus months. Meanwhile, due to the sold put, risk on the trade can be quite substantial, should the equity take a steep tumble ahead of expiration. If Twitter Inc (NYSE:TWTR) is churning between the two strikes at expiration, the loss is limited to the net debit paid.