Options Radar: Friday's Notable Fresh Positioning With Institutional Sized Trades

by: Joe Kunkle

The trend in recent options activity has turned notably bullish since July 3rd, which also coincided with the market turnaround.

I track positioning in the options market with high impact trades, and it has become a key signal for market direction, with the action shifting to more bullish strategies, including out of the money call buying, bullish risk reversals, put selling, and a lack of downside put buying. The lack of bearish bets signaled the end of the downside move in the markets, but if this complacency continues with the market overbought we could see a sharp reversal in coming weeks.

Here is a quick recap of some of the notable options action from Friday (I provide more in depth analysis for clients), noting that options activity is a prime indicator in upcoming stock moves, both for direction and for magnitude:

Homebuilders (NYSEARCA:XHB) traded more than 20,000 September $16 calls with the ETF trading at $15.12 early Friday, a buyer of 9,500 and a buyer of 3,000 the biggest trades in bullish bets ahead of New Home Sales on Monday, Case Shiller on Tuesday, and MBA Mortgage Applications on Wednesday. The short homebuilders trade became crowded and there is now a lot of short covering as the XHB broke its downtrend late last week.

Pfizer (NYSE:PFE) traded more than 50,000 September $15 calls on Friday, led with a big buyer of 33,000+, while the August $15 calls also traded more than 70,000 contracts. Much of the action was buying and earnings are set for August 3rd before the open. Shares are yielding nearly 5% and the FDA approved a higher dose of Aricept late Friday for treatment of Alzheimer's.

Citrix Systems (NASDAQ:CTXS) traded 6X average put volume as the August $45 and $40 puts each traded more than 3,000 contracts with shares at $47, ahead of July 28th earnings. There was a buyer of 1,700 August 45 puts and a buyer of 1,200 August $40 puts. The action was bearish in a name that has disappointed on earnings recently, and is trading at a rich valuation, potentially unjustifiably so.

Santander (STD) had a buyer of 5,500 September $14/$12.50 puts spreads for $0.75, although both legs bought offer side as 17,000 puts traded, or 4X average.

Foot Locker (NYSE:FL) traded 8X average daily call volume on Friday as buyers came in for September $12.50 and $15 calls, 98% of the action bullish offer side buying as shares rallied 3.4%. Shares trade 0.45X sales and 11.55X free cash flow.

CH Robinson (NASDAQ:CHRW) shares are near 52 week highs heading into July 27th earnings and expectations are likely high considering Expeditors (NASDAQ:EXPD) recent pre-announcement showing a strong freight industry. Shares are rich on valuation at 23.3X earnings and 80.9X free cash flow. More than 15,000 puts traded Friday, 12X average volume with 60% offer side buys including fresh action in August $60 and $57.50 puts. There is also a bearish skew heading into the results.

Seattle Genetics (NASDAQ:SGEN) traded 20X average options volume as the December chain was busy with more than 4,000 $15 calls and $10 puts trading in a spread. The action was bearish, a 4,000 contract risk reversal betting against the Biotech. The firm is expecting trial results from Lintuzumab for AML in Q3, and this trade appears to be betting against positive results.

JP Morgan Alerian MLP Index (NYSEARCA:AMJ) traded 35X average put volume as 4,100 September $33/$30 put spreads were bought for $1.10. The high yielding ETN is at 52 week highs as MLP's have rallied. Top 10 components include Enterprise (NYSE:EPD), Kinder Morgan (NYSE:KMP), Plains (NYSE:PAA), Energy Transfer (NYSE:ETP), Magellan (NYSE:MMP), Kinder (NYSE:KMR), Energy Transfer (NYSE:ETE), Enbridge (NYSE:EEP), ONEOK (OKS), and Linn Energy (LINE). This is a bearish bet on the top performing group in the market, due to the attractive yield. However, there are risks with MLP's, including: Sensitivity to Oil/Gas Prices, Interest-Rate Risk, Share Dilution, Regulatory Risk, and more.

Assured Guaranty (NYSE:AGO) traded 12,000 calls, 4X average as 5,000 August $14 calls were rolled up the $17 strike, also bought in an extension of a bullish bet, but taking some money off the table into Q2 earnings.

Agrium (AGU) had a buyer of 5,500 January $65 OTM calls at the $4.60 offer in a high dollar value trade, a bullish bet on the fertilizer.

Arthur Gallagher (NYSE:AJG) traded 50X average call volume as 2,862 September $25 calls traded against OI of 370, offer side buyers accounting for most the action into July 27th earnings. Shares are trading in a tight triangle and could look to take out all time highs on earnings. The insurance broker trades 15.6X earnings, 1.48X sales, and 28X cash flow.

Transocean (NYSE:RIG) had a buyer of 3,200 September $47.50 OTM calls at the $3.25 offer in a bullish bet, and a few more buyers came in as 5,000 traded.

Infinera (NASDAQ:INFN) traded 8,670 calls, more than 13X average volume as the September $10 calls traded more than 4,000 and the January 2010 $10 calls also saw 1,200 bought, most of the action offer side buying as shares climbed 30.8% on heavy volume with earnings. Traders are looking for the Q2 strength to continue to carry shares higher, with $10 the next major resistance.

Superior Energy (NYSE:SPN) traded 2,881 August $25 calls against OI of 45 with shares at $24.30, offer side buying including a block of 1,000 at $0.60 ahead of July 28th earnings. Shares have been parabolic and traders may be seeking a similar earnings blowout that was seen as CPX.

Disclosure: No Positions in Above Mentioned Stocks, but Considering Position in SPN Calls

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