XLY, BP Options – Unusual Trading Activity – April 19, 2013
This week we’re taking a look at unusual options trading activity in the SPDR Consumer Discretionary Fund (XLY) and British Petroleum (BP).
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:
SPDR Consumer Discretionary Fund (XLY)
An unusual amount of option activity has been detected in XLY. Yesterday, traders had traded over 13,000 contracts on the stock. That’s roughly twice the daily average.
XLY is currently trading for $52.61 per share. That’s just 3% off the 52-week high of $54.31 and a modest 29% above than the 52-week low of $40.77.
One strategist sold 10,000 June $38 puts for just $0.02. With the open interest on the strike at just 242, this is definitely an opening position.
Put selling like this for pennies is an interesting type of trade. On one hand, there’s a high probability of the trade working out. XLY would have to fall below $38 by mid-June. For a sector ETF, that would basically imply a total market collapse in the next two months. In other words, there’s an excellent chance this trade will make $20,000.
However, if the market does collapse, this risk is extreme. For every dollar the stock drops below $38, this position would lose a cool $1 million. Clearly, this isn’t a trade for the faint of heart.
British Petroleum (BP)
Our tracking system has detected option trading on the oil giant.
BP is currently trading for $41.09. The shares are up nearly 18% from the 52-week low of $34.95 and just over 8% below the 52-week high of $44.88.
This week, the October 41 calls were sold 15,000 times while the October 37 puts were bought 11,000 times. The spread traded for $1.85 and $1.67. Average volume for BP is around 34,000 contracts per day.
This type of spread is called a collar and is a protective trade (most likely). The collar buyer is long shares of BP and is limiting the positive or negative gains that can be made on the position.
Essentially, the trader is limiting the downside risk of the portfolio with this trade. However, since the calls at the upper strike of the collar are being sold at-the-money, the trader is more likely protecting against a down move in the stock.
By selling the calls against the long puts, the trader is reducing the cost of his downside protection.
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
