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Most Active Options Update: Research in Motion, Home Depot, Coca-Cola

RIMM, HD, and KO are actively trading in the options pits today

by 12/4/2012 1:13 PM
Stocks quoted in this article:

Three of today's most actively traded names among options traders are Research In Motion Limited (USA) (NASDAQ:RIMM - 11.60), The Coca-Cola Company (NYSE:KO - 37.40), and The Home Depot, Inc. (NYSE:HD - 64.61). Here is a quick look at some interesting activity we are seeing in these option pits today.

Call volume is easily surpassing put volume in RIMM today; roughly 45,000 calls have changed hands versus fewer than 10,000 puts. The most active strike is the January 14 call, where close to 16,000 contracts have traded, narrowly surpassing existing open interest. A number of large and mid-sized blocks have traded on this out-of-the-money call, all of which crossed at the ask price. It appears that traders are anticipating considerable upside in the stock over the next several weeks; breakeven at expiration for this call is $14.51 (strike price plus average premium paid). This is a 25% surge from current levels. Between now and January expiration stands RIMM's third-quarter earnings report, due Dec. 20. Traders could be hoping an earnings-induced pop brings their positions closer to in-the-money territory. The wager is a relatively pricey one, as the implied volatility for the January 14-strike call stands at 73.0%, above the two-month historical volatility reading of 66.5%.

Put players have taken an interest in KO of late, as evidenced by the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.65, which stands one percentage point from an annual high. In other words, puts handily outweigh calls in the front three-months' series of options, and short-term speculators have rarely been more put-heavy. More of the same has continued today on the soft drink giant; the February 36.25 put has seen nearly 7,300 contracts trade on open interest of 5,274. More than three-quarters of the volume has traded off the ask price, and implied volatility has nudged higher, suggesting traders are buying these puts to open. The strategy suggests the belief that KO will drop over the next couple of months and be trading south of $35.67 (strike price less average premium paid) by February options expiration. This move would take the stock below its 320-day moving average, which is currently perched near the $36.20 level.

Finally, a block of 1,400 contracts changed hands on the HD May 62.5 put. The block traded at the ask price and exceeds existing open interest, suggesting the bearish bets are being bought to open. This block of long puts was tied, however, to 55,000 shares of stock, meaning it isn't simply a bet the stock will move lower. The 1,400-contract block effectively controls 140,000 shares, but with a current delta of -0.38, or -38%, the total put exposure is more like 53,200 shares (1,400 * 100 * 0.38), or roughly equivalent to the shares purchased. Buying puts (which are short delta) and buying stock (with long delta) is a delta-hedging strategy aimed to eliminate the impact of a stock's price action and focus more on volatility.

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.

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