Fushi Copperweld Options (FSIN): Unusual Trading Activity
Options in small-cap company Fushi Copperweld (FSIN) experienced an unexpectedly large amount of unusual trading activity yesterday.
FSIN has traded in a very tight range of $7.50 to $8.40 between December 2011 until yesterday. Then at yesterday’s close, Fushi Copperweld stock unexpectedly closed down 5.6% at $7.15.
However, the shares on the actual stock traded 5 times the normal volume. In other words, the stock traded 1.8 million shares as opposed to its usual volume of around 200,000 shares.
This is definitely a meaningful event. Yesterday our tracking system picked up that over 9,000 put contracts and 3,300 call contracts changed hands.
Volatility in the stock jumped almost 45%. Don’t forget, an increase in a stock’s volatility is directly correlated to an increase in its option premium values.
And one trader took advantage of the rise in volatility in a big way.
He sold 1,300 May $7.50 – $5.00 bull put spreads.
With the increase in volatility, this option trader was able to collect a premium of $0.65 a contract. Meaning, the total premium he pocketed for this trade was $84,500.
For those of you who don’t know, a bull put spread is the sale of a put option and the instantanious purchase of another put option at a lower strike. This limits an option trader’s risk.
By initiating this trade, he expects FSIN to trade back to its normal range above $7.50 by May expiration.
A perfectly well thought out trade.
But I’ll get to some issues here in a moment…
Fushi Copperweld is based in Beijing, the People’s Republic of China. The company engages in designing, developing, manufacturing, marketing, and distributing copper-clad wire products.
The company offers its products for use in grounding applications, power cables, magnet wires, electrified railroad cables, and tracer wires in the utility market.
Most interesting is that there’s absolutely no clarity as to what’s driving the option activity. There aren’t any headlines or press releases that substantiate this action.
So, what’s the explanation?
In this case, professional option traders must be studying the stock’s technicals as well as the option chains and guesstimate what might be going on.
In my long experience… my thoughts would be either a possible secret takeout (not made public yet) by another related company or simply some insider buying and selling of stock and options.
Whatever the case, if this guy is correct, he certainly stands to make quite a bit of money.
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Category: Unusual Options Trading Activity
