Stocks quoted in this article:
Three of today's most actively traded names among options speculators are Ford Motor Company (NYSE:F - 11.46), Microsoft Corporation (NASDAQ:MSFT - 26.89), and Wal-Mart Stores, Inc. (NYSE:WMT - 72.12). Here is a quick look at some interesting trades we are seeing in these option pits today.
During the past 20 trading days on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), roughly four F call contracts have been purchased to open for every put. The propensity for calls is continuing today, as about 24,000 calls have changed hands so far, versus roughly 6,300 puts. With more than 10,600 contracts hitting the tape, the February 12 call is easily the most active strike. Implied volatility has moved higher at this out-of-the-money strike, and data from the ISE indicates the majority of this volume is being purchased to open. Based on today's volume-weighted average price (VWAP) of $0.35, breakeven at expiration in just over two months is $12.35, or the strike price plus the average premium paid. This is roughly 7.8% higher than the stock's current perch.
MSFT has gained 1.6% today and is challenging its overhead 20-day moving average, which has acted as resistance since early November. Meanwhile, large blocks changed hands at the July 28 call and July 27 call shortly after the open. Nearly 40,000 of the 28-strike calls were evidently purchased to close for $1.15 per contract and 34,400 of the 27-strike calls were sold to open for $1.52 each. According to Trade-Alert, the closing side of the transaction exits a Nov. 13 trade at a gain of $0.49 per contract, as these July 28 calls were originally sold to open for a credit of $1.64 each. The newly opened short calls are near the money (just 11 cents above the stock's current price), so the investors may expect very limited upside in MSFT for the next several months (or plans to quickly close or roll the trade).
Lastly, WMT speculators are showing a preference for puts. More than 4,700 of these bearish bets have traded, versus about 2,100 calls. Most active is the December 70 put, where 2,400 contracts have crossed the tape, with the vast majority trading off the ask price. Rising implied volatility at this front-month, out-of-the-money strike suggests at least some of the orders are of the buy-to-open variety. For this put to be in the money by expiration on Dec. 21, the retailing stock needs to dip south of $69.76 (strike price minus the $0.24 average premium paid). This is a drop of 3.3% from current levels. Since hitting a multi-year high of $77.60 on Oct. 16, WMT has given back about 7.1% of its value. The shares are currently on an upswing, however, up 6.6% from their Nov. 19 near-term low and trading back above their 10-day and 20-day moving averages (which have themselves enjoyed a bullish crossover recently).
The 20 stocks below have attracted the highest options volume -- in the front three-months' series -- during the past two weeks. Data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White.