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Most Active Options Update: Cisco, JPMorgan, and Bank of America

CSCO, JPM, and BAC are seeing notable options trading activity today

by 1/23/2013 1:00 PM
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Of the 20 equities seeing the heaviest options volume in recent sessions, three names of notable interest this afternoon are Cisco Systems, Inc. (NASDAQ:CSCO - 20.77), JPMorgan Chase & Co. (NYSE:JPM - 46.15), and Bank of America Corp (NYSE:BAC - 11.34). Here is a quick look at today's interesting activity in these options pits.

CSCO is trading slightly lower today following news that the networking firm will buy Intucell (an Israeli wireless technology firm) for $475 million in cash. In the options pits, trading is proceeding at a rapid clip, with almost 71,000 contracts trading across all strikes. Typical intraday volume is closer to 43,000 at this point in the session. The most active strike is currently the July 24 call, where the resounding majority of the 30,000 contracts changing hands has traded off the ask price. The volume is a mix of buying and selling, but those purchasing the calls to open are doing so at a volume-weighted average price (VWAP) of $0.27. Breakeven for the position is therefore $24.27 (strike plus VWAP), which CSCO needs to overcome by July options expiration in order for these call buyers to profit. Delta for this option is just 17%, giving it a less than 1-in-5 shot of being in the money when these options expire in six months. Of course, speculators can close out of the position at any time between now and then. What's more, if CSCO is trading south of the purchased strike price at expiration, call buyers' losses are capped at 100% of the premium paid.

JPM CEO Jamie Dimon is stirring up headlines today at the annual meeting of the World Economic Forum in Davos, Switzerland. First, he apologized for his company's $6 billion trading loss last year, but then reminded the audience that his bank was "there in good times and bad times for everyone." Meanwhile, back at home in the options pits, the stock is seeing some activity on the February 45 put. Nearly 10,000 contracts have changed hands, exceeding existing open interest. The lion's share of the volume -- including two large blocks -- traded at the bid price, suggesting the positions could be sold to open. By selling these for a VWAP of $0.39, the speculators are betting JPM will continue to trade above this strike price through February options expiration. If this proves correct, the puts will expire out of the money, allowing the put sellers to retain the credit initially collected as profit. If JPM falters and slips below this level at expiration, however, the speculators will likely be required to fulfill their observation of buying the shares at an effective price of $44.61 (strike price less VWAP). Puts (either of the bought-to-open or sold-to-open variety) have not been popular on JPM of late. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.71 currently stands just 1 percentage point shy of an annual low.

Another banking giant, BAC, may be popular among option buyers looking for bargains -- implied volatility for at-the-money BAC options reached a 52-week low today. Two out-of-the-money puts are experiencing notable volume today; the March 9 put and the August 10 put have seen respective volume of roughly 12,500 and 10,000 contracts, nearly all of which has traded at the ask price. As implied volatility has risen at both strikes, these low-priced options may have been bought to open as bets on a pullback in the shares. The back-month position traded for a VWAP of $0.03 while the August-dated, higher-strike put crossed at a VWAP of $0.54. Given the relatively low delta of both options, this could be the work of shareholders hedging recent gains via protective puts. BAC has added more than 56% in the last 12 months and has surged 64% from its late-July low of $6.90.

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.



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