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 - 28.05), Citigroup Inc. (NYSE:C - 41.02), and Nokia Corporation (ADR) (NYSE:NOK - 4.09). Here is a quick look at today's interesting option activity in these options pits.
FB is off to a strong start for the year, up more than 5% following an upgrade from J.P. Morgan Securities this morning. Calls are especially popular, with nearly 100,000 contracts trading, outpacing typical intraday call volume by 45%. So far, the most active strike is the 1/4 28-strike call, where more than 17,000 contracts have changed hands, easily outpacing existing open interest of under 5,000. The majority of these trades have gone off at or near the ask price, signifying buy-to-open activity. These bets target short-term upside in FB through Friday's close -- when these weekly options expire -- and will be in profitable territory at the close if FB is trading north of $28.27 (the strike price plus the volume-weighted average price [VWAP] of $0.27). During the past 10 trading days, the number of FB calls being purchased to open on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) has nearly quadrupled the number of puts, for a call/put volume ratio of 3.88.
Option speculators are taking a shine to C today, as the shares have traveled to a new annual high. One notable strike is the June 44 call, as nearly 5,100 contracts have changed hands, most of which traded at the ask price. These are likely being purchased to open, as prior open interest is fewer than 1,800 contracts. Breakeven at expiration for these out-of-the-money positions is $46.47, or the strike price plus the VWAP of $2.47. This is more than 13% above current levels and is in territory not explored by C since May 2011. The option's delta is 36%, however, implying a 36% chance the option will be in the money by June expiration. The delta reading also means the C option will increase $0.36 in value for every $1 advance in the stock (and will conversely lose $0.36 for any $1 decline), all other factors being equal.
Bearish speculators are once again hoping to call a top in NOK, as suggested by today's activity at the February 4.5 put. Roughly 2,500 contracts have traded, easily exceeding open interest of just 135. What's more, nearly all of the volume has traded at the ask price, suggesting these in-the-money puts are being bought to open. Given the VWAP of $0.68, NOK would need to be trading below $3.82 (strike price less premium paid) by the close on Feb. 18 in order for these speculators to be profitable at expiration. NOK has gained more than 40% since mid-November and has outperformed the S&P 500 Index (SPX) on a relative-strength basis by 40 percentage points during the last two months. Despite this impressive price action, the 10-day put/call volume ratio of buy-to-open activity on the ISE/CBOE/PHLX stands at 1.25 and registers in the 84th annual percentile, suggesting that bearish speculation has been more rampant among option buyers just 16% of the time during the last 12 months.
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.