FB, C, WM Options — Unusual Trading Activity — June 8, 2012

| June 8, 2012 | 0 Comments

Unusual Trading VolumeThis week we’re going back to take a look at some very unusual options trading activity in Facebook (FB), Citigroup (C), and Waste Management (WM).

As many of you know, unusual options volume can be a valuable indicator as to what traders are thinking, and more importantly, where these stocks are heading in the short-term.

This is something professional options traders pay a lot of attention to, and for good reason…

Unusual options activity can “tip off” big moves in a stock, either up or down.

So let’s take a look at some ‘interesting’ activity that caught our eye this week:

Facebook Options (FB)

Options in troubled company Facebook (FB) experienced a large amount of unusual trading activity Tuesday morning.

If you’ve turned on any business TV show in the last few days, you’ve heard about Facebook’s recent IPO debacle.

After hitting a high of $45 a share the day it started trading, the stock has been moving lower ever since.  FB closed at the end of Monday’s trading session at $26.88.

A beating of just under 45%.

However, experienced option traders take a stock like FB sitting at these fast moving lows and weigh whether it’s time to jump in or abandon ship.

One trader Tuesday decided it was time to jump in.  And jump in big!

According to our tracking system, the trader came in and sold 8,000 FB June $27 strike put options at an average price of $1.15 per share.  The total premium collected on his 8,000 contracts of Facebook was a cool $920,000.

Remember, put selling is a bullish strategy.

The option trader needs FB to stay at or above the strike price by expiration to profit.

And with Facebook starting to show signs of leveling off, this trader’s clearly betting the stock has finished falling. 

Now all he needs in order to keep the full premium is for FB to stay at or above $27 by June expiration. 

If that happens, the trader will be one happy camper.

While I like the attractive premium that was collected, I’m not convinced this trade’s a lock.

I’ll explain why in a moment… but first, a few words about the company.

For those of you who don’t know, Facebook operates as a social networking company worldwide.  They build tools that enable users to connect, share, discover, and communicate with each other.

The company enables developers to build social applications on Facebook and to integrate their websites with Facebook.  All this while offering products that enable advertisers and marketers to engage with its users.

So, what’s the problem?

Many advertisers are unsure if they are spending money wisely on Facebook ads today.  And if they hesitate, Facebook’s revenue could be in for a significant drop.

In addition, regulators may prevent the company from tracking its users. This significant regulatory action could detract from the value of its advertising platform.  And it could lead to a mass exodus of users.

These are huge issues for Facebook, and concerns about them could drive the stock a lot lower from here.

I hope Facebook pulls an about face and turns to the upside for this option trader.  But this trade wouldn’t be my first bet on the stock.

Citigroup Options (C)

Options in once troubled Citigroup (C) have been showing heavy activity over the past few days.

And today (Wednesday) is no different.

Citigroup call options are on the move.

Citigroup has traded in a wide range since the beginning of 2012.  But after moving straight down over the last few weeks, the stock’s now trading near its lows for the year.

However, the broad market is up today and C is following suit.  The stock’s up almost 4.5% at $26.88 a share and climbing.

And the shares are showing signs of delivering their first back to back up days since April 17th.  As a result, option traders are acting like kids in a candy store.  They started buying calls on the financial services behemoth as soon as the bell rang early this morning.

They clearly don’t want to be late to a potential market rally party!

Option traders have their eyes on two different strikes… specifically the C June $26 and $27 call options.  So far this morning, these options have already traded over 13,000 times… well above the normal volume.

According to our tracking system, the average price being paid for the C June $27 calls is $0.75 a piece.  And the C June $26 strike call options are being purchased for around $1.35 per contract.

The important point about these options purchases is that they’re naked (without any corresponding stock or other option).  This gives traders unlimited upside potential if C trades above their corresponding strikes by June expiration.

What’s more, when we see heavy call buying spread across multiple strikes and numerous transactions (not just a single block trade), it’s a good sign sentiment is improving.

In other words, the broad based buying shows that multiple traders have the same feeling about the stock’s upside potential.

Now, if you don’t already know, Citigroup is a global financial services company doing business in more than 160 countries worldwide.

They serve commercial and consumer clients through their regional consumer banking segment.  And they also provide investment banking, treasury, and securities services through their institutional clients group.

So, what’s behind this sudden burst in Citigroup option activity? 

I believe it’s a combination of the banking industry getting beaten down so heavily in May coupled with some generally good news internally.

In other words, Citigroup shares appear cheap here and the company is now recapitalized and refocused under new management… perfect conditions for a successful turnaround.

And now that Citigroup’s problems have been pretty much cleared up, investors are feeling sufficiently confident to come in and purchase the stock.  It will once again return to its former glory!

Finally Citigroup’s true earnings power will be once again revealed as its distressed assets slowly run off, eventually creating a catalyst for the stock price to rise.

Bottom line…

It’s obvious a number of option traders think it’s time for Citigroup to break its recent down trend and move to the upside.

Waste Management Options (WM)

Options in mega garbage disposal company Waste Management (WM) experienced a large amount of trading activity Thursday.

Waste Management is an interesting company right now… 

They just reported first-quarter earnings that were largely in line with expectations.  However, revenue grew by a solid 6.2% to $3.3 billion.  Not too shabby.

And as you know, garbage needs to be disposed of whether the economy is growing or contracting.  In other words, the waste disposal business performs well in both good times and bad.

Despite these two positives, WM continues to trade in a tight range between $31 to $35 a share.

However, one option trader is positioning for a massive move to the upside.

It seems he’s thinking as the economy grows, the need for trash removal will increase dramatically.

How do I know this?

Simple… Yesterday a single trader came in and purchased 21,000 WM Oct $24 call options for an average price of $0.80 each.

This was obviously no small trade at $1,680,000.

And as a straight call option play, this option trader can see unlimited upside profits if his thesis is correct and WM skyrockets.

However, that’s a pretty large guess, so what’s behind his thinking?

As many of you know, Waste Managementis the largest integrated waste services provider in the US.  They currently operate 271 active landfills and 294 transfer stations.

In addition to their core collections and disposal business, the company’s Wheelabrator segment operates 22 waste-to-energy plants.  These plants convert recyclable trash and produce renewable energy.

But wait, there’s more…

Waste Management’s recent acquisition of Oakleaf may provide an interesting opportunity for meaningful short-term profitability.  Securing Oakleaf’s national accounts should prove to be a vital strategy for driving more dollars toward Waste Management’s own landfill assets.

In addition, WM’s ability to generate cash has given them ample opportunity to invest in technology.  Believe it or not, technology is an important driver that will help WM keep up with the ever increasing amount of trash our society produces.

No question about it, Waste Management offers customers a portfolio of solutions that can address the entire waste stream for a long time into the future.

Call me crazy, but I think this option trader is onto something.  Do you?

More Options Ideas…

That wraps up this week’s unusual options trading and volume…

Keep in mind, there’s a lot more unusual options activity going on than what we discuss here.

We just try to bring you what we feel are the most significant ones– and the ones you might actually be able to make some money on!

So keep an eye on your email inbox… we have a lot more options trading ideas coming your way!

Safe Trading,

Marcus Haber

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Category: Unusual Options Trading Activity

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.