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Most Active Options Update: Bank of America, Cisco, and Wal-Mart

BAC, CSCO, and WMT are actively trading in the options pits today

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

Among today's most actively traded names in the options pits are Bank of America Corp (NYSE:BAC - 10.55), Cisco Systems, Inc. (NASDAQ:CSCO - 19.79), and Wal-Mart Stores, Inc. (NYSE:WMT - 69.23). Here is a quick look at some interesting option trades we are seeing today.

After hitting a new annual high in yesterday's session (but finishing slightly in the red), BAC has caught the attention of short-term put buyers today. More than 9,200 contracts have traded on the 12/28 10.5 strike puts, including a block of 8,999 that traded for $0.22 per contract. According to the International Securities Exchange (ISE), an investor bought these bearish positions to open on the hopes that BAC will move lower as the end of the year approaches. For these puts to be profitable at expiration, BAC will need to be trading south of $10.28 (strike less premium paid) at the close on Dec. 28. The stock has been trending higher of late, however, outperforming the S&P 500 Index (SPX) by 15 percentage points during the last two months.

Currently, the most active option trading in the CSCO pits is the February 20 call, where more than 7,000 contracts have traded, nearly all of which was contained to one block that traded at the bid price of $0.77 per contract. This appears to be the work of investors selling to close a long call position that was opened last week, when similarly hefty volume traded at the ask price. If so, these call buyers are exiting with a profit, as the stock has gained 4.6% since the beginning of December. The shares are now butting up against potential resistance at their 40-month moving average, and CSCO's Relative Strength Index (RSI) reading looks elevated at 72, suggesting a consolidation could be in the cards.

Call volume has ramped up on WMT today to a pace that is eight times greater than what's typically expected. Meanwhile, put volume is three times heavier than usual, as the world's largest retailer faces scrutiny from Indian government officials regarding its lobbying practices. The shares are down almost 2.5%, and the most active strike is the January 75 call. This out-of-the-money position has seen more than 41,000 contracts trade, the majority of which have changed hands at the ask price. Meanwhile, implied volatility is ticking higher, suggesting at least some of the volume is due to call buyers. For this call to be profitable by expiration, however, WMT would need to spring back to $75.08 (strike plus average premium paid) by the close on Jan. 18. This is a jump of 8.5% from current levels (in just over a month), but the most call buyers stand to lose is 100% of the modest premium paid. Earlier this week, WMT saw heavy action on front-month puts.

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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