CBOE Vix index (VIX) – Risk aversion is back with a vengeance on Monday’s early trade. Following through on Asian market weakness, S&P index futures were already 20 points lower pre-market and haven’t managed much of a bounce since the open. The Vix index has jumped 15% to 27.85 mid-morning, while the October Vix future is back above a reading of 30. In the November options it appears that one investor expects some follow through equity index weakness and positioned accordingly by selling 25 strike put options to lower the cost of 37.5 strike calls. The premium was reduced to just 50 cents but does position the investor vulnerable to a reversal in the direction for stocks, likely to be accompanied by lower implied volatility.
Wellpoint Inc. (WLP) – Bucking the market today with a 3.7% rally in its share price is Wellpoint at $54.08. Indeed the news emanating from Washington that President Obama may look for a compromise to universal health care reform has provided a lift to the sector. Around 10,000 call options have so far traded at the 55 strike price with the severity of the rally making for interesting movements in the premium, which has shifted from 40 cents to 1.25 during the morning. It’s also possible that within this volume one savvy investor has bought and sold at a handsome profit several thousand contracts. Elsewhere in the September contract investors have bought 4,500 60 strike calls where open interest ahead of today’s session was just 5,390 contracts. The uncertainty surrounding changes to government plans is being taken as a positive to healthcare insurance providers and this uncertainty has lifted options implied volatility on this stock by 18% to 44% this morning.
UnitedHealth Group Inc. (NYSE:UNH) – Also on the mend today are shares at UnitedHealth Group, which are so far 4.3% to the better at $29.25. Option investors bought calls expiring at the weekend at the 29, 30 and 31 strikes in hopes of further share price gains by then. At the 31 strike the current premium of 15 cents implies a further gain of 6.5% this week. Investors with more patience paid 1.15 in the September expiration at the 30 strike, while bigger optimists paid 1.95 at the December 32 strike.
Chevron Corp. (NYSE:CVX) – With the confidence in global recovery coming under scrutiny, crude oil prices are coming under pressure this morning. That naturally harms refiners from two stand points. Weaker demand hurts profits as do lower prices. Looking at an 18,000 trade printing late morning in the September contract, we conclude that one investor feels that shares at Chevron are in for a 10% slide before options expire. The trade involved the same amount of calls and puts at the same 60 strike and would argue for a slide from its present $66.65. Shares are lower by 2% so far today. If this is a sold straddle, the investor expects an expiration price at or close to $60.00 for Chevron. Its share price hasn’t reached that low since March 10. The 60 strike calls were traded for a 7.15 premium, while the puts appeared to trade to the 50 cents bid. Combining the two premiums yields a gross straddle ‘cost’ of 7.65, which would cap this investors view on the upside for Chevron in one month’s time to $67.65. The closer the share price declines towards the strike price by expiration, the better. Option implied volatility rose to 30% today.
Oil Service Holdrs Trust (NYSEARCA:OIH) – Shares tracking oil service companies have declined by 4.5% in early trading. One options investor appears to be banking on a further decline to around $95 by September. A put-butterfly combination appears to have been trade centered on the 95 strike using surrounding 90 and 100 strikes to control the risk of this position. The position involved 6,000 contracts at the 90 and 100 strikes bought in exchange for 12,000 puts sold at the 95 strike, which implies the investor expects prices to gravitate there when expiration comes around. The net premium outlay of 53 cents implies a maximum profit to the investor of 4.47 per contract if the OIH touches down as expected.