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 Facebook Inc (NASDAQ:FB - 28.86), JPMorgan Chase & Co. (NYSE:JPM - 49.46), and Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR - 45.23). Here is a quick look at today's interesting activity in these options pits.
One speculator may be expecting some dramatic near-term price action in FB and is hoping to capitalize via a long straddle. Data from the International Securities Exchange (ISE) shows a trader simultaneously bought to open matching blocks of 2,646 March 29 puts and March 29 calls, for a net debit of $1.88 per straddle ($1.18 for each put and $0.70 for each call). This strategy -- a bet on future volatility -- will be profitable as long as FB is trading north of $30.88 or south of $27.12 (the strike plus or minus the premium paid) when March options expire. The worst-case scenario for the straddle buyer is for FB to be trading right at the 29 strike at expiration, at which point he or she loses the entire premium paid.
A JPM trader who opened long calls at the April 50 strike last month appears to be rolling these positions up to the April 52.50 call strike. Specifically, the 50-strike calls saw a large block trade on Jan. 30 for $0.58 per contract. Today, a similarly sized block traded at the bid price of $1.12, at the same time a block at the 52.50 strike changed hands at the ask price of $0.37. It therefore looks as though a trader is closing an existing position at a $0.54-per-contract profit, then opening a higher-strike call. Breakeven on the new option is $52.87 (strike plus premium paid), or almost 7% above current levels. Delta on this trade is currently 0.20, giving the option a 1-in-5 chance of being in the money at expiration. The stock, meanwhile, tagged a new annual high of $49.65 today and is already up more than 12% in 2013.
The two most active GMCR options so far today are the out-of-the-money 2/22 42-strike and 42.50-strike puts, which will expire at the end of this week. One investor traded 3,700-contract blocks of these weekly options and apparently bought to open the lower-strike put for $0.20 while selling to open the higher-strike put for $0.24. In other words, this is a bull put spread, which achieves its maximum profit potential if GMCR is trading at or above the short strike (42.50) at expiration. The most this put spread seller can make is the initial net premium collected ($0.04 per spread), while losses are capped at $0.46, or the difference in strike prices less this net credit. With the stock now trading 6% above the short strike -- and fewer than four days remaining until expiration -- this is a conservative play looking for modest gains in the short term.
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.