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 AT&T Inc. (NYSE:T - 34.21), Microsoft Corporation (NASDAQ:MSFT - 26.66), and Bank of America Corp (NYSE:BAC - 11.62). Here is a quick look at today's interesting option activity in these options pits.
The July 35 call is in focus in T option pits today, as nearly 4,000 contracts have changed hands, 97% of which crossed at the ask price. Given the modest move higher in implied volatility, it is likely that some of this volume consists of call being purchased to open. Based on the volume-weighted average price (VWAP) of $1.03, the breakeven price for this strategy (at expiration) is $36.03, which is a 5.3% advance from current levels. The stock has more than six months to make this move, however, and the call buyers only stand to lose their premium paid if this advance does not come to fruition. T is currently trying to emerge from a months-long trading range and is attempting to close a second consecutive week atop its 10-week moving average after nearly three months below this trendline.
Some MSFT put sellers are abandoning ship ahead of expiration, as the January 2013 28-strike put has taken top honors today as the most active strike. More than 25,000 contracts have traded on open interest of 83,000, and the International Securities Exchange (ISE) suggests that much of this volume has been purchased to close. The option is now comfortably in the money and the stock has been range bound ever since its Nov. 13 bear gap (spurred by a management shakeup). As such, option traders may have felt it prudent to close out of these short puts to avoid assignment at expiration. Also active today is the January 2013 26-strike put, where roughly 12,000 contracts have traded. ISE data suggests this is a mixture of buying and selling activity, and volume has been split between the bid price and the ask price.
BAC is shuffling lower today in sympathy with sector peer Wells Fargo & Company (NYSE:WFC), which issued a mixed earnings report earlier today. The January 2013 10.5-strike put has garnered notable attention, as almost 13,000 contracts have traded versus open interest of just 287. More than 90% of the volume has traded at the ask price, indicating these bearish bets are being purchased to open. This is a fairly aggressive (albeit inexpensive) gamble on the stock dropping south of $10.48 (strike minus VWAP of $0.02) by next Friday's close, which is when these options expire. This would be a loss of nearly 10% from current levels. The at-the-money (11.50-strike) straddle for BAC is currently priced at $0.56, or 4.8% of the stock's price. In other words, the options market is pricing in a move -- higher or lower -- of under 5% between now and January expiration. Today's play could be an earnings bet, as the banking giant is expected to release its quarterly numbers next Thursday, the day before these option contracts expire.
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.