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 Facebook Inc (NASDAQ:FB - 30.10), Citigroup Inc. (NYSE:C - 42.42), and Bank of America Corp (NYSE:BAC - 11.56). Here is a quick look at today's interesting option activity in these options pits.
Following its big reveal of new search technology yesterday -- which was received with a muted "meh" -- FB is hovering around breakeven. One option that is seeing some newfound attention is the 2/1 25.50-strike put, which has seen more than 2,000 contracts trade, nearly doubling existing open interest at the strike. The large majority of the volume trading on this weekly option has changed hands at the bid price, for a volume-weighted average price (VWAP) of $0.39. This may be the work of speculators selling the puts to open and hoping for one of two potential outcomes. First, FB could stay above the strike price through expiration on Feb. 1, leaving the put to expire worthless. At this point, traders who sold the put keep the initial premium as profit. These put sellers are enjoying a handsome premium today, relatively speaking, given that the implied volatility reading of this put is currently 77.1%, which is notably inflated compared to the stock's one-month historical volatility of 45.9%. Secondly, the investors could be willing to buy FB shares at an effective price of $25.11 apiece (strike price less average credit collected). If FB is trading below the sold strike price when the option expires, the put sellers will likely have to fulfill their obligation to buy the shares at the strike price. The $25.50 mark is a steep 15.3% drop from current levels.
With earnings due ahead of the open tomorrow, C is seeing heavy put trading. Roughly 32,000 contracts have already changed hands, nearly doubling the typical intraday put volume. Among the most active strikes so far is the January 2014 40-strike put, where two large blocks have traded between the bid and the ask price. Implied volatility is virtually unchanged, so the volume (which totals more than 4,000 contracts) is likely a mixture of buying and selling. Also notable is the June 38 put, with nearly 2,700 contacts trading at the ask price for a VWAP of $1.54. If these options are being bought to open, it is a bet that C will drop south of $36.46 (strike minus VWAP) over the next six months by June options expiration. If C has not breached this level in the required time, the most these put buyers have to lose is the premium paid.
BAC is also on deck to report earnings in the morning, but unlike C, call options are the popular choice. In particular, the February 12 call has been active, with nearly 16,000 contracts crossing the tape. The majority of the positions traded at the ask price, and data from the International Securities Exchange (ISE) indicates at least some of these are being purchased to open. With a VWAP of $0.26, the breakeven at expiration for this trade is $12.26 (strike plus VWAP), or 6% above the stock's current price. A move to this level would mark a new annual high for the shares. Delta for this back-month option is 0.36, implying a 36% chance the stock will be north of the strike price by the time options expire at the close on Feb. 15.
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.