GLD, NOK, ARIA Options — Unusual Trading Activity — August 31, 2012
This week we’re going back to take a look at some very unusual options trading activity in SPDR Gold Shares (GLD), Nokia (NOK), and Ariad Pharmaceutical (ARIA).
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:
SPDR Gold Shares Options (GLD)
Options in the SPDR Gold Shares (GLD) lit up our tracking system Friday afternoon with huge put selling activity.
I think the put selling is simply a result of gold popping in recent weeks and traders thinking the gains will hold. While GLD fell fractionally Friday morning to $161.74 as spot gold prices drifted lower to $1,620 per ounce, the ETF is up more than 4% since mid-August.
I have repeatedly cited frequent call buying in this fund as investors bet on a rally in the shiny metal.
But now, traders are mixing things up a bit and starting to sell put options instead of buying call options. Let’s not forget, both strategies are meant to take advantage of a move higher in gold prices.
Here’s what caught my eye…
A trade in the GLD August 161 puts expiring this Friday stood out, with 5,000 put contracts changing hands for $0.97 a piece. In other words, this trader collected $485,000.
This represents a bet that GLD will hold above $161 for the next five sessions. If this holds true, this trader will take the entire premium and deposit it into his bank account.
So, is GLD now in an uptrend?
Obviously there are option traders who feel it is. They’ve made their bullish opinions readily apparent by an enormous amount of bullish option trading in GLD over the last week.
And while historically gold prices usually move higher as stocks move lower, this has not been the case recently.
Gold broke out of a range last week and continues to move higher… whether the market is moving up or down. And if the broad commodity market continues to be volatile, gold prices should continue to rise.
As you might have guessed, I’m in total agreement with this trade.
GLD’s continued surge is based on fear of inflation and fear of a currency collapse. So it’s very likely we won’t see a reversal anytime soon.
We’ll see how this trade works out, but I’m jumping in.
Nokia Options (NOK)
Options in mobile device company Nokia (NOK) experienced some of the biggest trades of the day yesterday into the close betting that last month’s lows will not be broken.
NOK surged 8.6% yesterday to $3.35, and has more than doubled from its 15-year low of $1.63 in July.
The stock is now at its highest level since early May.
What’s interesting is that our tracking systems detected the sale of 15,000 NOK April $1.50 puts for the bid price of $0.14. That works out to $210,000 in premium received.
All of these trades were against open interest of just 20 contracts. So, a new position was clearly initiated.
Now if NOK remains above $1.50 a share by September expiration, this trader will walk home with a lot of money in his pocket.
It’s seems quite obvious this option buyer believes Nokia stock is going to hold at these levels despite a possible broad market pullback on global and domestic growth concerns.
However, what’s going on with this mobile device company that would make a trader lay out a bet on such a low priced stock?
Before we get to that, here’s a little information on the company…
If you don’t already know, Nokia is the world’s largest manufacturer of mobile devices and a leader in mobile network equipment and software.
The company’s mobile phones provide consumers with experiences in voice, video, gaming, navigation, imaging, and music. And through its 50%-owned Nokia Siemens Networks joint venture, the company provides equipment and services to network operators, service providers, and corporations.
Now back to this enormous investment on the bullish side…
Nokia is in a much stronger position to survive with devices based on the Windows Phone platform than if it had stayed with Symbian and MeeGo. These were the old outdated platforms on which their systems operated.
Nokia still enjoys the leading market share in mobile phones, fueled by demand for its inexpensive basic phones in global areas with price sensitive consumers.
Lastly, Microsoft, AT&T, and Nokia are all investing heavily in promotional activity to drive the adoption of the Lumia 900, providing a reasonable shot at success. The Lumia 900 is Nokia’s first high-end LTE smart phone to hit the market.
The upshot of all of this is…
Option traders believe there’s a unique opportunity to take advantage of a low priced stock with inexpensive options. By selling puts on Nokia, they have a chance to make serious profits even if NOK goes nowhere here.
We’ll see how it all plays out!
Ariad Pharmaceuticals Options (ARIA)
Options in biopharmaceutical company Ariad Pharmaceuticals (ARIA) experienced a large amount of unusual trading activity Tuesday.
Just after the opening bell, one option trader came in and purchased 2,600 contracts of the September $21 strike call options for an average price of $0.45.
And it’s easy to understand why…
Since early October 2011, ARIA has gained more than 155% in value. What’s more, the stock closed up again today by 1.0% to $20.50, with options heavily skewed towards the bullish side.
Remember, call option buyers want the stock to remain above the strike price.
In this case, as long as Ariad trades above $21.45 per share by September expiration, this trader will be very happy. After all, he has unlimited profit potential on his call options as long as the stock stays above this price.
Clearly, this trader is a big fan of ARIA over the next few months!
And I tend to agree. Our tracking system estimates the probability of making money on this trade at just over 45%.
But you’re probably wondering… why is this small biotech so hot right now?
For those of you who don’t know, Ariad Pharmaceuticals is a biotech company that focuses on the discovery and development of small molecule drugs for the treatment of cancer.
This stock has been in an uptrend for a year now, despite the fact that ARIA’s Oncology drug was rejected in March 2012 and then again in June of 2012.
This would normally lead you to assume the company would be getting taken out to the woodshed for a nice beating. However, that hasn’t been the case with ARIA.
You see, the biotech still has two major things working for them.
The first is that Ariad has realized a lot of the potential gains for Ridaforolimus from Merck already. This drug was rejected by the FDA, but ARIA still realized royalties from Merck over that time which helped their revenue stream.
Second, on July 30, 2012, Ariad submitted a New Drug Application for the use of its pan-Bcr-Abl kinase inhibitor, Ponatinib. This drug is used in treating patients with resistant or intolerant Chronic Leukemia and a form of Acute Lymphoblastic Leukemia.
Unlike Ridaforolimus, Ponatinib has performed well in clinical testing. In a pivotal Phase II trial, Ponatinib showed it is far superior to any other drug in the competitive landscape for this kind of treatment.
Simply put, Ariad is far from out of the “game,” and they have a lot going for them that can easily propel this stock much higher.
And that’s obviously why option traders are making bullish bets on this exciting biotech.
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!
***Editor’s Note*** Just a quick note to tell you to make sure you’re buying technology stocks. The entire sector is at a 10-year high.. and looks poised to skyrocket even higher! For trading ideas, check out this advisory.
Safe Trading,
Marcus Haber
Category: Unusual Options Trading Activity
