MU, WAG, BAC Options — Unusual Trading Activity — March 30, 2012
This week we’re going to take a look at some very unusual options trading activity in Micron Technology (MU), Walgreen (WAG), and Bank of America (BAC).
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:
Micron Technology Options (MU)
Options in Micron Technologies lit up our tracking system Monday with a staggering amount of unusual trading activity.
Even though the stock closed down 1.8% to $8.25, that didn’t stop bullish option traders from coming in by the busloads.
During Monday’s trading session, call options of Micron traded 250,000 contracts. And that just about equals the amount of contracts open across every option strike in the entire company.
One of the larger option trades for the day was the purchase of the May $10 strike calls. This was done 70,000 times for $0.14. A total cost of $980,000.
I’m a fan of this options play. It’s a good-looking speculative play.
Just keep in mind this is a true speculative position. Micron must move quite a bit to the upside for substantial gains to be made.
But obviously option traders think it’s very likely!
If you don’t know, Micron Technology is one of the world’s leading providers of advanced semiconductor solutions. Through its worldwide operations, Micron manufactures and markets a full range of flash memory products.
And this eye-popping call buying is due to the continued advancement of a deal between Micron and Intel (INTC).
According to the deal, Intel will sell two of its NAND wafer factories to Micron for $600 million. Micron will pay half the amount in cash and the other half will be retained as an advance for future purchases.
What’s more, the deal will give Micron better margins because MU will have full ownership of these factories and this deal will boost its capacity by as much as 30%.
I think this is what’s got option traders so excited! Let’s wait and see!
Walgreen Options (WAG)
Options in drugstore chain Walgreen experienced a large amount of unusual trading activity Tuesday.
Walgreen’s stock closed up 1.25% to $34.80 after its earnings report Tuesday. Yet even after earnings, option traders continued to make bullish options plays.
During the day’s trading session, call options in WAG outweighed put options at a nearly 3 to 1 ratio.
The heaviest activity was seen in the April $33 put strike and the April $36 call strike.
This trade is known as a risk reversal.
This strategy was placed by the sale of the April $33 strike put options for $0.18.
And then simultaneously, the same trader purchased the April $36 strike call options for $0.24.
This was done 7,000 times for only $0.06 a share… for a total cost of $42,000.
I like this trade as it offers unlimited upside potential for only $0.06 a share.
In addition, our tracking system calculates a 50% probability of making profits over the $0.06.
Obviously option traders are very comfortable with this!
As you probably know, Walgreen’s operates a chain of drugstores in the United States. It sells prescription and non-prescription drugs. The company also sells an array of general merchandise and household products.
Tuesday’s unusual trading activity came on the back of Walgreen’s earnings announcement.
The company reported a second quarter sales increase of 0.8% to $18.7 billion from the prior-year quarter.
CEO Greg Wasson attributes this increase to, “significant progress on our Well at Walgreens’ strategy to become America’s first choice for health and daily living.”
Obviously this is what got option traders so excited.
Option traders think April’s expiration is going to be a very lucrative one.
Bank of America Options (BAC)
Options in controversial Bank of America continued to see a huge amount of unusual trading activity Thursday.
Bank of America stock closed up another 1.5% to $9.75 on its long way back from under $5.00 a share just a few months ago.
Over the last few trading sessions, BAC options have been amongst the most active across any other single stock with close to $1 million contracts trading hands each day.
And Thursday was no different.
It’s obvious that some option traders are still bullish on this bank.
Early Thursday morning, as a market correction seemed to be taking shape, one option trader purchased a bull call spread.
This strategy is simply the purchase of one call option and the simultaneous sale of another call option of a higher strike.
The trader zeroed in and purchased 25,000 call options of the April $10 strike for $0.25. Seconds after, he sold an equal amount of the April $11 strike calls for $0.07.
Overall he invested $450,000 into these options.
Here’s what he’s looking for… come April expiration, if BAC can somehow close at or above the short calls’ strike price of $11, he’ll make $2,050,000. That’s a hefty 5 to 1 payout.
Although this option trade looks enticing. I’d stay away from it.
I think this trader is presuming a lot. Mainly, he’s disregarding the fact that BAC stock has tried numerous times to trade above $10 a share, just to fail every time.
In addition, the trader is not giving himself enough time for this trade to play out… especially when we’re staring at a possible short term market correction. When this happens, banks are usually the first to roll over.
As you all know, Bank of America provides various banking and financial products and services to individual consumers, small-and middle-market businesses, and institutional investors. The company also services corporations and governments in the United States as well as internationally.
The recent unusual option activity in Bank of America is most certainly due to its new pilot program for homeowners.
The pilot program released by Bank of America would put an end to distressed mortgages. It would purchase homeowners negative equity mortgages, turning the owner into a renter.
The problem with this program is that even if it works, it could take months to have any effect on the bank directly.
But we’ll wait and see. This option trader obviously believes BAC is poised higher sooner rather than later.
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
