Unusual Options Activity In Illumina $ILMN

| October 7, 2015 | 0 Comments

Unusual Trading VolumeUnusual Options Activity In Illumina $ILMN 

As many of you know, unusual options activity 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…

Illumina $ILMN is a biotech company specializing in genetic analysis.  The company has a market cap of over $23 billion on sales of around $2 billion per year.  For a good description of the company, follow the link.

$ILMN is trading at $144.93, down 12% for the year.  That’s 40% below the 52-week high and right at the 52-week low.

So what does unusual options activity in ILMN tell us?

As of this writing, ILMN is down big.  It opened down 18% and is currently down 11% after gaining back some ground.  Essentially, the decline is based on disappointing preliminary revenues for the third quarter.

More specifically, management lowered revenue growth expectations from 20% for the year to 18% overall.  Lower than expected sales in Europe and Asia are one of the reasons why the company moved projections lower.

Here’s the deal…

This week, a trader sold a huge block of ILMN October puts.  Keep in mind, a put option makes money when the underlying stock or stock goes down.  As such, selling puts would make money if the stock increases or stays above the short put strike.

Specifically, a trader sold 12,700 125 puts expiring on October 16th.  The total cash collected for this trade is roughly $2.3 million or $1.80 per option, which is the max gain for the trade.  The trade breaks even at $123.20.

Here’s the chart of $ILMN:

unusual option activity, a chart of ILMN

ILMN has clearly gotten crushed over the last month, with today’s 11% the icing on the cake.  The stock is trading well below the 50-day moving average.  It doesn’t help that the healthcare/biotech sector has also been hit hard in recent weeks.

This trade is suggesting that despite the huge decline, ILMN has a definite floor.  The short put strike is $125, which is still a good $20 away from the current price.  The share price would have to decline by over 14% by the end of next week for the trade to lose money.

Most likely, the put seller sees the huge premium available at an OTM strike and is taking advantage of it.  After all, the news isn’t nearly as bad as the selling makes it seem.  Being able to capture $1.80 premium on a strike that’s $20 out of the money, with less than two weeks to expiration… well, let’s just say I certainly see why the trade was made.

More Options Trading Ideas…

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!

Yours in Profit,

Gordon Lewis

Note:  Gordon Lewis has been trading options for more than 15 years and he now writes and edits for Optionstradingresearch.com.  You can sign up for the newsletter and get a free research report. We are your go-to source for top notch options trading research.

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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.