Stocks quoted in this article:
Of the 20 equities posting the heaviest options volume in recent sessions, three names of notable interest this afternoon are Microsoft Corporation (NASDAQ:MSFT - 27.11), Bank of America Corp (NYSE:BAC - 10.89), and Cisco Systems, Inc. (NASDAQ:CSCO - 20.06). Here is a quick look at today's interesting option activity in these options pits.
Intermediate-term option players have descended on MSFT today, trading more than 2,800 contracts on the March 26 call, compared to open interest of roughly 1,100. More than 90% of these trades have gone off at the ask price, and implied volatility is edging higher, suggest the bulk of the volume is being bought to open. The volume-weighted average price (VWAP) on this in-the-money play is $1.61, making the average breakeven price at expiration $27.61 (strike plus premium paid). Although the stock has underperformed the S&P 500 Index (SPX), in terms of relative strength, by more than 10 percentage points during the last three months, call players have been upping the ante. During the last 50 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 208 calls have been bought to open for every 100 puts. The resultant call/put volume ratio of 2.08 is higher than 68% of the last year's readings, suggesting a preference toward the call side.
BAC has parlayed a price-target hike from this morning into a new 17-month high, and options traders are taking notice. More than 66,000 contracts have changed hands at the December 11 call, and although volume is higher than open interest, implied volatility is up more than four percentage points, suggesting some buy-to-open activity. For traders buying these calls today -- at a VWAP of $0.09 -- BAC needs to muscle above $11.09 by Friday's close for these options to be profitable by the time they expire. This would be a further move into new-annual-high territory, and is 1.8% above current levels. Now appears to be an attractive time to stock up on BAC options. Not only is the stock at a new annual high, but so is Schaeffer's Volatility Scorecard (SVS), indicating that BAC options are priced fairly low relative to the odds of a significant move by the shares.
Despite a bit of attention on the put side during Friday's trading, call speculators have returned to action in CSCO pits today. The most active strikes are the December and January 20 calls, and it appears traders are selling the front-month options to close and buying the back-month options to open. This strategy effectively "rolls" the bullish bet forward one month, giving the underlying additional time to make a move higher. Breakeven at expiration for the January 20 calls -- on average -- is $20.46, based on today's VWAP of $0.46. This is roughly 2% above the stock's current price (after a 1% pop higher in the shares today).
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.