HYG, XLU Options – Unusual Trading Activity – August 4, 2014

| August 4, 2014 | 0 Comments

Unusual Trading VolumeThis week we’re taking a look at unusual options trading activity in iShares iBoxx High Yield Corporate Bond ETF (HYG) and Utilities Select Sector SPDR ETF (XLU).

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:

iShares iBoxx High Yield Corporate Bond ETF (HYG)

Junks bonds have been selling off lately, but some traders feel a rebound is in the cards.

HYG, a popular junk bond ETF, is currently trading for $92.34. The price is 9% above the 52-week low of $84.79 and is 2% below the 52-week high of $94.59.

A bullish spread has been trading in blocks in September HYG options. 10,000 September 90 puts have been sold for $0.80 while 10,000 September 93 calls were purchased for $0.53. The result of the trade is a $0.27 credit.

Basically, the put selling is being used to finance the call purchasing. If HYG does nothing, the trade is still a winner. However, there is a lot of upside potential should the ETF climb to $93 per share by September expiration.

Utilities Select Sector SPDR ETF (XLU)

A big bullish trade in XLU suggests utilities could be in for a rally.

XLU, a widely-followed utilities ETF, is trading for $40.96, up 11% on the year. The shares are 8% below the 52-week high of $44.36 and 16% above the 52-week low of $35.22.

A trader bought 20,000 September 41 calls for $0.71 while selling the same amount of September 39 puts for $0.46. The trade cost a total of $0.25 per spread.

This is similar to the trade in HYG, where the puts are being used to help finance the calls. In this case, the trade costs money, so the owner of the spread needs XLU to climb above $41.25 (calls strike plus spread cost) in order to make money on the trade.

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

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Category: Unusual Options Trading Activity

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.