HPQ, BTU Options – Unusual Trading Activity – May 10, 2013
This week we’re taking a look at unusual options trading activity in Hewlett-Packard (HPQ) and Peabody Energy (BTU).
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:
Hewlett-Packard (HPQ)
A large amount of puts traded yesterday in HPQ. Based on the trade, it looks like an investor is hedging a very big stock position.
HPQ is currently trading for $21.18 per share. The stock’s up 49% year to date. It’s also an impressive 90% higher than the 52-week low of $11.18 and just 12% off the 52-week high of $24.05.
One investor bought 6,500 November 21 puts for $2.12 and then bought 650,000 shares of the stock. Put buying against shares of a stock is a hedge and serves as protection against a moderate down move in the share price.
This type of trade is actually fairly bullish. The investor is protected by roughly $2 to the downside – so down to about $19 in the stock by November. But, the upside is unlimited…and of course, stock doesn’t expire.
Basically, the investor is bullish on the stock but wants some downside protection for risk management/peace of mind purposes.
Peabody Energy (BTU)
A large call spread traded in BTU options this week.
BTU is currently trading for $21.12. The shares are up 16% from the 52-week low of $18.22 and are 29% below the 52-week high of $29.73.
Earlier in the week, BTU options were trading quadruple the average daily volume. Coal miners have been getting a boost from an improving picture of global economic growth.
The June 21 calls were purchased for roughly $1.05, while the June 23 calls were sold for $0.35. The bullish vertical call spread traded a total of 9,000 times.
The investor is basically expecting the stock to move $2 higher from the current price by June expiration. The total profit then would be $2 for the spread width, minus the cost of the spread, $0.70.
To put that into cash terms, it’s a total of $1.30 profit per spread times 9,000 spreads. That works out to nearly $1.2 million in profits! Maximum risk is the price paid for the spread, or about $600,000.
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!
Yours in Profit,
Gordon Lewis
Category: Unusual Options Trading Activity
