Asian Indexes Lead Huge Options Volume

by Frederic Ruffy | March 16, 2011 4:35 pm

Your daily options trading[1] wrap up.

Market Sentiment

There’s been a seismic shift in investor sentiment over the past few days. Thirteen million calls and 10.7 million puts traded across the exchanges so far today. The total put-call ratio has subsequently risen to 1.21 and is at its highest level since July of last year. The CBOE Volatility Index (CBOE: VIX[2]) added 3.60 to 27.92. The “fear gauge” rallied beyond 30 for the first time since July 2010. Investors are grappling with a number of worries, including a very poor reading on new housing starts, the unfolding nuke crisis in Japan, the European debt problems, and ongoing unrest in Middle East/North Africa. Contagion is in full swing, as sell-offs in equity markets moves across the continents. Although Japan’s Nikkei recaptured 5.7% overnight, index futures point to another aggressive round of selling when trading resumes Thursday. Europe’s equity markets finished broadly lower. The Dow Jones Industrial Average is down 175 points and the tech-heavy NASDAQ lost 30.5 points.

Bullish Flow

Peets Coffee & Tea (NASDAQ: PEET[3]) adds 96 cents to $46.97 and the PEET Jun 50 – 55 Call Spread trades at $1.75, 500 times, and 420 times. More than 1000 in both contracts now traded and looks like opening activity. Shares rallied 9.4% yesterday after dealReporter wrote an article detailing discussions between PEET and Starbucks (NASDAQ: SBUX[4]).

Peabody Energy (NYSE: BTU[5]) is trading up $3.21 to $68.34, as the prospect that nuclear projects might be taken off the shelf has increased interest in some of the coal names. 26,000 calls and 12,000 puts now traded in Peabody, or 2.5 times the average daily. BTU March 70 Calls are the most active with 6,000 traded, and some of the action might be closing. The contract is bid at 53 cents, is 2.4% out-of-the-money, and has two days of life remaining after today. The rest of the action is scattered, with April and June calls seeing active trading. Implied volatility in BTU is up 2.5% to 45.

Bearish Flow

IShares MSCI South Korea Index Fund (NYSE: EWY[6]), which saw heavy trading in its EWY March 54 Puts yesterday, is down 19 cents to $57.51 and the focus is now on EWY March 55 Puts. One player recently paid 16 cents per contract on 24,000. Now, 25,287 traded. Like yesterday, the action looks opening and to reflect concerns about additional losses in South Korea’s equity markets before the weekend and the March expiration.

Find more analysis and trading ideas at Option Trading Strategies[7].

Implied Volatility Mover

A couple of noteworthy recent trades in the iShares Japan Index (NYSE: EWJ[8]), which is down 33 cents to $9.70. One investor sold 100,000 EWJ April 10 Calls at 41 cents each and might have closed positions that were opened yesterday, when 200,000 were bought in late-day action. Open interest in the EWJ April 10 Calls increased by 138,732 after yesterday’s record volume in EWJ and, at 198,929, is now the largest position in the Exchange-traded fund. Another recent trade is EWJ April 7 – 8 – 9 Put Fly bought at 11 cents, 13,600 times. The spread is a bearish play, as it makes its best profit if shares fall to $8 by April expiration, a decline of 17.5% in 30 days. Implied volatility in the Japan fund is up 9% to 50 and moving to new 52-week highs. It’s up 175% since before the world’s third largest economy was hit with a triple whammy — earthquake, tsunami, and nuke crisis.

Options Flow

Bearish activity detected in Marriott International (NYSE: MAR[9]), with 6723 puts trading, or three times its recent average daily put volume.

Bullish flow detected in Chubb (NYSE: CB[10]), with 6402 calls trading, or 14 times its recent average daily call volume.

Bearish activity detected in Toyota Motor (NYSE: TM[11]), with 15,901 puts trading, or five times its recent average daily put volume.

Increasing volume is also being seen in the S&P 500 Index Options (CBOE: SPX[12]), the PowerShares QQQ Trust (NASDAQ: QQQQ[13]), and GE (NYSE: GE[14]).


Frederic Ruffy is the Senior Options Strategist at[15], a site dedicated to helping traders make sense of the complex and fragmented nature of listed options trading.

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  4. SBUX:
  5. BTU:
  6. EWY:
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  10. CB:
  11. TM:
  12. SPX:
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  14. GE:

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