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 Microsoft Corporation (NASDAQ:MSFT - 27.88), Intel Corporation (NASDAQ:INTC - 21.09), and Bank of America Corp (NYSE:BAC - 12.14). Here is a quick look at today's interesting option activity in these options pits.
While option volume is light than usual in MSFT today, one long-dated put is seeing some notable attention. More than 10,100 contracts have traded on the January 2014 25-strike put today, 10,000 of which crossed as one block, off the ask price of $1.41 per contract. At first blush, this looks like a straight bearish play, but in fact it may have little to do with the direction of the stock. Trade-Alert indicates this block was tied to a stock purchase, making this a delta neutral trade. In simpler terms, this is a likely bet on increased volatility that is relatively immune to the stock's price movement (as any drop in MSFT shares will be offset by an increase in the long puts). Although today's speculators are focused on next January, short-term volatility isn't a sure thing. Schaeffer's Volatility Index (SVI) for MSFT stands at 0.17, just above of a new annual low.
INTC speculators seem willing to hold onto an existing put option for one more month. Shortly after the open, it appears an investor sold to close 1,750 of the February 21 puts at the bid price of $0.12 per contract. At the same time, he bought to open a block of 1,750 March 21 puts at the ask price of $0.40. Disregarding any profit or loss from the front-month put, the breakeven at expiration for the newly created March position is $20.60 (strike less the premium paid). This is 2.3% below the stock's current price, but the option's current delta of negative 48 gives it a nearly 1-in-2 chance of being in the money by expiration on March 15.
The financial sector is leading the market today, and BAC has benefited, as it is currently up 2.5%. In the options pits, BAC is the second-most heavily traded equity, behind perennial favorite Apple Inc. (NASDAQ:AAPL). More than 240,000 calls have traded, eclipsing typical intraday call volume by 79%, while about 87,000 puts have changed hands, slightly exceeded what's seen on a normal day by this point in the session. Most active is the February 12 call, where more than 72,100 contracts have traded, the majority at the ask price. Implied volatility has risen almost 3 percentage points, suggesting some of this volume is being bought to open for a volume-weighted average price (VWAP) of $0.16. This is a short-term bet that BAC will surmount $12.16 (strike plus VWAP) by the closing bell on Friday, at which point today's call buyers will profit. If the stock closes back below the 12 strike, losses are capped at 100% of the premium paid.
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.