GE, GRPN, TRV Options — Unusual Trading Activity — April 6, 2012
This week we’re going to take a look at some very unusual options trading activity in General Electric (GE), Groupon (GRPN), and Travelers (TRV).
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:
General Electric Options (GE)
Options in General Electric lit up our tracking system Monday morning with a large amount of unusual trading activity.
Even though the market was up nicely Monday morning, GE traded flat, up only 2 cents to $20.09. This is clearly underperforming its DOW peers. And option traders jumped all over buying put options.
Right out of the gate Monday, option traders started purchasing huge amounts of contracts on GE. They were buying the April $20, the April $19, and the April $18 puts.
Close to 100,000 contracts were purchased across three strikes alone. Prices ranged from $0.32 for the $20 strikes, to $0.04 for the $18 strikes. And they’re still buying.
These trades were just simple put purchases, where option traders believe the stock is going to decline in value. In addition, by buying these options without any others to go along with them, option traders have unlimited gain potential.
I like this trade. It’s an inexpensive play on GE declining in value.
As you know, General Electric is one of the world’s leading technology and financial service companies. The company’s Energy infrastructure segment offers wind turbines, gas and steam turbines and generators, integrated gasification combined cycle systems. They also provide aircraft engine parts and nuclear reactors advanced semiconductor solutions.
This large put buying is due to its recent risky decision of trying to bring jobs back to America.
In fact, Jeff Immelt, General Electric’s chief executive, said the decision to put $1 billion into the group’s domestic appliance business to bring jobs back from overseas is “as risky an investment as we have ever made”.
I think that pretty much says it all.
And I believe he’s right. If this decision fails, it’ll be hung around Immelt’s neck forever.
It’s obvious, most option traders agree this isn’t the best idea.
Groupon (GRPN)
Options in troubled company Groupon experienced a large amount of unusual trading activity Monday.
If you’ve turned on any business TV show over the last few days, you’ve heard about Groupon. This company’s stock hit a high Friday of $18.98. It closed at the end of Monday’s trading session at $15.27… taking a beating of just under 20%.
However, experienced option traders take a stock like GRPN sitting at all-time lows and weigh whether it’s time to jump in or abandon ship.
One trader Monday decided it was time to jump in. And jump in big!
As Groupon fell sharply, this trader believes Groupon’s stock is finished falling for the year.
According to our tracking system, he sold 7,000 January 2013 $13 strike put options for an average price of $2.50 a share. This represented 5 times the amount of contracts currently open on this particular strike.
Remember, put selling is a bullish trade where an option trader needs the stock to stay at or above the strike price by expiration. And that’s exactly what this trader is expecting.
The total premium he collected on his 7,000 contracts of Groupon was a cool $1,750,000. All he needs to be a very happy camper and keep all of that premium is for GRPN to stay at or above $13 by January’s 2013 expiration.
Although I agree with the attractive premiums that were collected, I don’t think Groupon will stay above the $13 stock price.
For those of you who don’t know, Groupon operates as a local commerce marketplace that connects merchants to consumers by offering goods and services at a discount in North America and internationally.
The company sends daily emails to its subscribers regarding discounted offers for goods and services that are targeted by location and personal preferences.
The reason for Monday’s large activity was because the SEC said that Groupon must restate its last quarterly results.
Apparently, GRPN has been artificially inflating their revenue numbers in a questionable manner.
And as we know, when it comes to accounting irregularities, it could be a long time before the stock recovers.
In fact, a few analysts were recently quoted saying they see many more bumps in the road ahead for Groupon.
Tough to question that, but I hope this option trader is correct.
Travelers Options (TRV)
Options in big-cap company Travelers have been lighting up our tracking system all week with a large amount of unusual trading activity.
And yesterday was no different. TRV call options were on the move.
Travelers has traded in a tight range since the beginning of the year… moving only between $58 and $60 a share.
In yesterday’s market, Travelers held up well, currently up $0.15 to $59.35.
Like a kid in a candy store, option traders were buying a heavy amount of call options.
And the buying started as soon as the bell rang.
Option traders had their eyes on the April $60 call options. Right after the bell, these options had already traded over 13,000 times… well above the normal volume.
According to our tracking system, the average price paid was about $0.65 a contract.
Buying these calls naked (without any corresponding stock or other option), traders have unlimited upside potential if TRV trades above $60.30 by April expiration.
What’s more, when we see heavy call buying spread across many traders and not just in a single block, it’s a good sentiment sign.
In other words, it shows that multiple traders have the same feeling about the stock’s potential rise.
Now, if you don’t already know, Travelers provides various commercial and personal property and casualty insurance products and services to businesses, government units, associations, and individuals.
With TRV trading in a tight range for such a long time, what was causing this sudden burst in option activity?
There hasn’t been any news headlines or press releases on the stock.
So I believe this is strictly an earnings play.
Travelers announces first quarter results on Wednesday April 18, before the open.
Analysts are looking ahead this year. They believe that premium growth should accelerate if an economic recovery gains traction.
Their forecast is for modestly higher premiums in coming periods and an increase in demand for commercial insurance products.
They also believe TRV will have no problem retaining its existing client base as well as be able to generate new business opportunities.
Bottom line…
It’s obvious a number of option traders think it’s time for Travelers to break out of its stagnant range and move to the upside. We’ll wait and see if they’re correct.
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
Category: Unusual Options Trading Activity
