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 Ford Motor Company (NYSE:F - 12.88), Microsoft Corporation (NASDAQ:MSFT - 27.65), and Yahoo! Inc. (NASDAQ:YHOO - 19.40). Here is a quick look at today's interesting option activity in these options pits.
F is continuing to drift lower today -- challenging its 40-day moving average in the process -- but options speculators have zeroed in on one call strike in particular. More than 20,000 contracts have traded on the March 13 call, the lion's share of which traded at the ask price. Implied volatility has edged higher at this strike, and data from the International Securities Exchange (ISE) points to buy-to-open activity. In other words, these are bets that F shares will rebound slightly higher during the next six weeks, ahead of March options expiration. Specifically, F needs to be trading north of $13.42 -- the strike price plus the volume-weighted average price (VWAP) of $0.42 -- when the options expire, in order for today's call buyers to be profitable. This breakeven level is 4.2% above the stock's current price, while the strike price is less than 1% away. Still, the current delta for this option reveals just a 48% chance the call will be in the money at the close on March 15.
Today's most active option trading on MSFT is the March 27 put, where more than 8,500 contracts have changed hands. With three-quarters of this volume trading at the ask price, it is likely some of the orders were purchased to open. Given the VWAP of $0.44, breakeven at expiration would be $26.56 (strike less premium paid), which is a drop of 3.9% from the stock's current perch. Today's interest in short-term puts is a departure from recent trends. During the last 20 days at the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 252 calls have been purchased to open for every 100 puts. Also, the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.58 ranks in the third annual percentile. In other words, call open interest for MSFT options expiring within three months has rarely been so heavy (relative to put open interest) during the past 12 months.
After being upgraded to "buy" from "hold" at Stifel Nicolaus earlier today, YHOO has attracted call buyers, particularly at the April 22 strike. This out-of-the-money call is the most active YHOO option trading today, with nearly 6,400 contracts trading hands. While the volume looks to be a mixture of buying and selling, one large block caught our eye, as 1,500 contracts traded as one order and went off at the ask price of $0.23 per contract (or $34,500 for the entire block). If YHOO is trading above $22.23 when these options expire at the close on April 19, the buyer will be in profitable territory (and eligible for unlimited upside). If the shares are trading below the strike price, losses are capped at 100% of the premium paid. Currently, per the call's delta of 17, the options market is giving the option a 17% chance of being in the money by expiration. At any point between now and expiration, however, the call buyers can opt to sell out of the position to limit losses or take profits off the table.
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.