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Most Active Options Update: Citigroup, Amazon.com, and JPMorgan

C, AMZN, and JPM are seeing notable options activity today

by 1/7/2013 2:24 PM
Stocks quoted in this article:

Of the 20 equities with the heaviest options volume in recent sessions, three names of notable interest this afternoon are Citigroup Inc. (NYSE:C - 42.19), Amazon.com, Inc. (NASDAQ:AMZN - 266.85), and JPMorgan Chase & Co. (NYSE:JPM - 45.30). Here is a quick look at today's interesting option activity in these options pits.

The financial sector is in focus today after 10 names agreed to a collective $8.5 billion payout to settle foreclosure complaints. It's a big news day for C; in addition to its participation in this disbursement, the financial heavyweight's new CEO Michael Corbat announced new co-presidents and a new CEO of the Europe/Middle East/Africa region. Options trading is fast and furious, as both call and put volume is outpacing what's typically expected on an intraday basis. In midday trading, roughly 66,000 calls have changed hands versus 57,000 puts. The most popular strike so far is the February 44 call, where more than 5,500 contracts have traded on open interest of fewer than 1,500 contracts. One block of 5,000 changed hands at the bid price of $0.87 and may have been sold to open by a firm hoping to keep the premium collected as profit when the options expire in February. As long as C is trading below the strike price at expiration, these out-of-the-money calls will expire worthless. The $44 level is 4.3% above the stock's current price and is territory not explored since May 2011.

The most active AMZN strike today is the weekly 1/11 270-strike call, which is slightly out of the money and will expire at Friday's close. More than 6,500 contracts have traded -- versus open interest of just 953 -- and more of these have traded at the ask price compared to the bid. Finally, implied volatility at this strike has risen 4.7 percentage points, all factors which suggest the initiation of new long call positions. The volume-weighted average price (VWAP) at this call is $1.97, making the breakeven price $271.97, or 1.9% north of current levels. AMZN has notched a new annual high this morning on the heels of a brokerage upgrade, but today's call buying is a bit of an anomaly. In the last 50 days, the put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands at 1.14, which is 5 percentage points shy of an annual peak. In other words, rarely have option buyers been more put focused in the past 10 weeks.

JPM is also among the banks impacted by today's settlement, and is seeing some short-term option trading as well. The January 2013 48-strike call has seen more than 6,500 contracts cross the tape, nearly 70% of which traded at the ask price. Given a pop higher in implied volatility at this strike, some of today's volume is likely being purchased to open. The VWAP is $0.11, making breakeven $48.11 (strike plus premium). The stock has roughly two weeks through expiration at the close on Jan. 18 to overcome this level and place today's call buyers in profitable territory. The delta reading for this out-of-the-money position is currently 10%, giving the stock a 1-in-10 chance of trading north of the strike price by expiration.

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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