MS, OSUR, HIG Options — Unusual Trading Activity — August 10, 2012
This week we’re going back to take a look at some very unusual options trading activity in Morgan Stanley (MS), OraSure Technologies (OSUR), and Hartford Financial (HIG).
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:
Morgan Stanley Options (MS)
Options in once troubled Morgan Stanley (MS) showed heavy activity before the close last Friday.
And today is no different.
Morgan Stanley put options are on the move.
MS has traded in a wide range since the beginning of June. And after moving straight down during most of July, the stock’s now on its way back up.
What’s more, the broad market is up today, and MS is following suit. The stock’s adding another 3% this morning at $14.13 a share and climbing.
Here’s the kicker…
As a result, option traders are acting like kids in a candy store. They started selling puts on the financial services behemoth as soon as the bell rang early Friday morning.
They clearly don’t want to be late to a potential market rally party!
Option traders have their eyes on one particular strike. Specifically, the MS October $12 put options. Friday before the close, an option trader came in and sold this strike over 10,000 times. Well above the normal volume.
According to our tracking system, the average price these put contracts were sold for was $0.45 a piece. As a result, this trader brought in a total of $450,000 in cash.
Here’s the important point about these option purchases to remember. As long as MS stays above $12 a share by October expiration, this trader’s going to reap a huge windfall.
In addition, we’re seeing heavy put selling spread across multiple strikes, not only the October $12 strikes. That’s a good sign sentiment is improving in this name.
In other words, the broad based buying shows that multiple traders have the same feeling about the stock’s upside potential.
So why is Morgan Stanley in the spotlight?
Now, if you don’t already know, Morgan Stanley is a global investment bank with a history that can be traced back to 1924.
The company has institutional securities, wealth management, and asset management segments and more than 60,000 employees. The company derives about half its revenue from overseas.
And with global growth improving, this could be a good situation for MS moving forward.
So, what’s behind this sudden burst in Morgan Stanley option activity?
I believe it’s primarily a combination of two factors. The banking industry getting beaten down so heavily in May and recent evidence showing the European situation appears to be improving.
In other words, MS shares appear cheap here and the company is now recapitalized and refocused under new management.
It’s now one of the surviving standalone investment banks. And this should help the company gain market share worldwide.
But these aren’t the only reasons…
In addition, gradual increases in asset prices and interest rates should have a positive effect on the company’s asset management and wealth management segments. This will help borrowing and lending to become more favorable.
And finally, since MS is one of the largest investment companies worldwide, it’s not as dependent on trading revenue. Less reliance on trading revenue may allow the firm to weather regulatory changes better than its peers.
Bottom line…
It’s obvious a number of option traders think it’s time for Morgan Stanley to break its recent down trend and move to the upside.
What do you think? Are these option traders correct?
OraSure Technologies Options (OSUR)
Options in medical-diagnostic company OraSure Technologies (OSUR) experienced a large amount of unusual trading activity late Monday afternoon.
In fact, the option activity was more than five times greater than the average volume for this name. It certainly looks like traders are taking another shot at this company.
And they just might be on to something…
After trading sideways for most of the year, OSUR broke out in late June. The stock surged 36% from $10.32 to $14.01 per share on very heavy volume.
That’s a huge move in a very short period of time.
However, OSUR has now fallen back to around the $10.50 level. And once again, the stock is getting lots of attention from option traders.
According to our tracking system, one trader came in yesterday and sold 2,000 OSUR September $12.50 put contracts for $2.05 apiece.
That’s a nice sized bet!
The trader collected a cool $410,000 from the trade. And he’ll get to keep every penny as long as OSUR makes it back up to $12.50 a share by September expiration.
Remember, put selling is a bullish trade. To profit, the option trader needs the stock to stay at or above the strike price by expiration.
Although I like the attractive premiums that were collected, I think it’s unlikely OSUR will get back above the $12.50 level in such a short amount of time.
So, what’s this trader thinking that I’m not?
For those who don’t know, OraSure Technologies develops and manufactures medical-diagnostic products. These products are used to test patients for HIV infection and other conditions, as well as to test for illegal substances.
The company markets its products primarily to the healthcare and insurance industries in the US and abroad.
Here’s why I think this name is attractive to our put seller…
First of all, OSUR releases their second-quarter earnings after the bell today. This event could certainly serve as a catalyst for the stock to head higher.
Don’t forget, a number of healthcare names have announced impressive results this quarter.
In addition, the company received huge news from the FDA recently. On July 5th, the regulatory agency announced its approval of OSUR’s over-the-counter HIV test.
It’s the first and only rapid over-the-counter HIV test ever approved in the United States. And it will be available online and in over 30,000 stores beginning this October.
We’ll see how this plays out, but I don’t think this trade has a high chance of success.
Hartford Financial Options (HIG)
Options in insurance and banking company Hartford Financial (HIG) showed a large amount of trading activity just before the market’s close Tuesday.
As the broad market is down slightly this morning, investors were treated to some good economic news. Labor costs and productivity both came in better than expectations.
The figures indicate American businesses are cutting costs and improving efficiency. Important moves that should help boost corporate profits down the road.
So, it’s not surprising that our tracking system is showing continued put selling in what has become a fairly stable name.
However, HIG has been trading in a sideways range between $16 and $17.20 a share over the last few months. And with earnings season winding down, there’s no reason to think this stock will make any large moves for a while.
So, what’s the big trade?
Option volume in HIG surged Tuesday to a total of 25,000 contracts trading hands. That’s compared to the normal volume of 6,000 contracts on this name.
Our tracking system picked up one trader making a large bet that Hartford Financial is going to move higher over the next several weeks.
Right before the close Tuesday, a single trader came in and sold 5,000 put contracts on HIG. He sold the HIG September $19 strike put options at an average price of $1.85.
Total proceeds from the sale were $925,000. This is a hefty sum which this trader will happily put in his pocket as long as HIG moves and stays above $19 a share by September expiration.
Let’s remember… when selling puts, the maximum profit is the cash collected on the trade as long as it’s above the strike price at expiration.
And in this case, it’s not a bad potential pay-off!
So, the question is, why so much enthusiasm around this name?
For those of you who don’t know, Hartford offers a diverse range of property-casualty, life insurance, annuity, and mutual fund services. These products are distributed via financial institutions, direct internet sales, and a network of more than 11,000 independent agents.
But that’s not all… This company also has a lot of other good things going for them.
For one, HIG has fully repaid the Treasury for its TARP investment. So the company is now free of the government’s investment in the form of preferred shares.
In addition, Hartford is well diversified across product offerings and geography. This provides the company with significant cross-selling opportunities and partially isolates it from slowdowns in particular areas of its business.
Finally, HIG’s strong partnership with the AARP provides them with a captive customer base. As baby boomers retire, they will require more of Hartford’s products and services.
I think between the current stock market momentum and the good things HIG has going for them, this is exactly what options traders are betting on.
It’s obvious this trader believes this will play out in his favor, what do you think?
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!
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Category: Unusual Options Trading Activity
