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Most Active Options: Hewlett-Packard (HPQ), Lululemon, JPMorgan Chase

HPQ, LULU, and JPM are seeing notable options trading activity today

by 6/20/2013 1:09 PM
Stocks quoted in this article:

Of the 20 equities seeing the heaviest options volume in recent sessions, three names of notable interest this afternoon are Hewlett-Packard Company (NYSE:HPQ), Lululemon Athletica inc. (NASDAQ:LULU), and JPMorgan Chase & Co. (NYSE:JPM). Here is a quick look at today's interesting activity in these options pits.

Roughly 19,000 puts have changed hands on Hewlett-Packard Company (NYSE:HPQ) today, representing a 13% mark-up to the average intraday volume. One group of option traders is eyeing a drop to levels not seen since late February, and is picking up the July 19 put for a volume-weighted average price (VWAP) of $0.04. The vast majority of the 2,054 contracts traded have done so at the ask price, and volume is outstripping open interest, pointing to buy-to-open activity. In order for these deep out-of-the-money (OTM) puts to be profitable, Hewlett-Packard must fall south of $18.96 (strike less VWAP) by the close on July 19. This breakeven mark not only represents expected downside of 24% to HPQ's current perch at $24.97, but also territory not charted on an intraday basis since Feb. 21. This bearish bias is witnessed outside of the options pits, as well. Among covering analysts, 21 out of 23 maintain a "hold" or worse suggestion toward the stock, while the consensus 12-month price target of $22.81 is a discount to present trading levels. From a contrarian perspective, an additional round of upwardly revised ratings could apply a fresh wave of buying power.

Lululemon Athletica inc. (NASDAQ:LULU) has had a dismal June, with the shares off 18.6% month-to-date to trade at $63.37. The stock should continue to struggle for the remainder of this week, according to the speculators who are targeting the June 67.50 call for a VWAP of $0.02. A number of these positions have changed hands at the bid price, and implied volatility was last seen 9.1 percentage points higher -- two indications of sell-to-open activity. Ideally, LULU will stay south of the strike price through tomorrow's close, allowing the calls to expire worthless, and the traders to retain the modest credit collected. The stock last closed above $67.50 on June 11. Given Lululemon Athletica's dreary technical performance of late (caused in no small part to the company's recent string of fundamental woes), this could also be indicative of a larger covered-call strategy. Simply stated, shareholders may be selling these options in order to earn some extra income as LULU struggles on the chart.

JPMorgan Chase & Co. (NYSE:JPM) is following in the bearish footsteps of the broader equities markets today, with the stock down 1.6% at last check to linger near $52.72. A number of speculators are betting on a steeper slide in the short term, and are scooping up the weekly 6/28 52.50-strike puts for a VWAP of $0.81. A healthy portion of the 6,711 contracts exchanged have crossed on the ask side, volume is exceeding current levels of open interest, and data from the International Securities Exchange (ISE) confirms buy-to-open activity. Based on the premium paid, JPM must retreat south of $51.69 by next Friday's close in order for the puts to be profitable. Widening the scope reveals that puts have been popular among near-term traders. Specifically, JPM's Schaeffer's put/call open interest ratio (SOIR) of 1.12 ranks in the 80th percentile of its annual range, pointing to a put-skewed bias in the front three-months' series of options.

The 20 stocks below have attracted the highest options volume -- in the front three-months' series -- during the past 10 trading days. The companies highlighted are those that are new to the list since the last time the study was run. Data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White.

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