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 JPMorgan Chase & Co. (NYSE:JPM - 45.90), Ford Motor Company (NYSE:F - 14.19), and Morgan Stanley (NYSE:MS - 20.32). Here is a quick look at today's interesting option activity in these options pits.
On the eve of its earnings release, JPM options are heating up. Call volume is running about 77% heavier than usual, while put volume is just slightly higher than average. One interesting block trade happened between the January 2013 45-strike call and the March 48 call, as blocks of 4,800 contracts were executed simultaneously. The former traded between the bid and the ask prices, while the latter changed hands north of the ask price. It looks as though traders could be selling to close their front-month positions and opening longer-dated, higher-strike calls. The March calls crossed at $0.73 per contract, making the breakeven price at expiration $48.73 (strike plus premium paid). This is more than 6% above current levels and is territory not explored by JPM in more than four years.
As F touched another new 52-week high this morning, some option players headed for the exits. A block of 10,000 February 13 calls traded at the bid price of $1.10 per contract, and is likely the result of call buyers closing out of an existing position. Meanwhile, the most active strike is the January 2013 14-strike call, where more than 15,000 contracts have traded, three-quarters of which were priced at the ask. Implied volatility has risen by roughly 4 percentage points, so it is likely that some of this call volume is being purchased to open. This is representative of a short-term bet that F will continue pressing higher through Friday's close (when the options expire). Breakeven at expiration is $14.21, or the strike price plus the volume-weighted average price (VWAP) of $0.21. Delta on this call option is 0.15, or 15%, suggesting a 15% chance these calls will be in the money by expiration.
With its own earnings coming up on Friday, MS is seeing a lot of attention at the January 2013 20.5-strike call strike. Nearly 12,000 contracts (including one block of 10,000) have traded on this front-month option today, easily exceeding open interest of 1,963. Virtually all of the volume has traded at the ask price, and implied volatility is up 9 percentage points. In other words, traders are buying calls ahead of the earnings report in hopes of capitalizing on a move higher in the shares. Based on the VWAP of $0.32, breakeven for this option is $20.82 at expiration. Currently, the front-month, at-the-money (20.50-strike) straddle is priced at $0.98, or 4.8% of the stock price. The options market is therefore pricing in a move of 4.8% in either direction through Friday's close. This is an upward or downward move to $21.30 or $19.34, respectively, the former of which would yield a profit for today's call buyers.
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.