Was yesterday the most exciting session of the year?
09/21/17

Money dashed to and fro yesterday, with options traders chasing every move.

On the surface it was a busy session because the Fed announced plans to start unloading bonds accumulated since the 2008 financial crisis. But to traders, it seemed like movements in the market ran much deeper.

Metals, for example, continued to grab attention as activity surged in gold and silver miners, aluminum producers, and steelmakers. At least two big transactions stood out in the options market:

  • Century Aluminum (NASDAQ: CENX), the small, highly volatile and heavily shorted cousin of Alcoa (NYSE: AA) led the charge as traders amassed 15,000 October 22 calls, mostly for $0.49. Calls fix the price where a security can be purchased, so those contracts stand to ratchet up in value if the shares take another stab to the upside. (They can also go worthless if a big enough move doesn’t occur.) CENX, which came into the session riding a 31 percent gain in the previous month, rose another 3.25 percent to $20.38. 
  • Goldcorp (NYSE: GG): The producer of the yellow metal saw a short-put roll, with 15,000 April 12 puts sold for $0.71 and a position in the January 11s closed for $0.19. This is a bit complicated, but the basic gist is that the trader received a credit and is looking for the stock to hold its ground or move higher over the next seven months. Interestingly, similar trades last week foreshadowed big gains in a handful of energy stocks.
National Oilwell Varco (NOV) 3/27/17 - 9/20/17 chart

Source: OptionsHouse by E*TRADE.

Speaking of energy, it was also in focus yesterday as crude oil shot to its highest level since the spring. OPEC, it turns out, is more keen on restricting prices than some might have expected.1 Here’s what options traders had to say about the matter:

  • National Oilwell Varco (NYSE: NOV) has averaged about 2,500 contracts per session in the last month. On Wednesday, volume shot to quadruple that amount with calls outpacing puts by a bullish 11-to-1 ratio. Buyers double-fisted the 22-September 35.50 calls and the 22-September 36 calls, looking for a quick spike into tomorrow’s close. Patience isn’t a virtue for this investor.
  • Southwestern Energy (NYSE: SWN) had about 5,600 of its October 6.50 calls purchased for $0.20 to $0.23. 
  • Parlez vous francais? One energy bull did, snagging 2,600 October 52.50 calls in Paris-based Total (NYSE: TOT).

Foreign stocks, after all, have been on fire since April as investors return to global markets neglected since the Greek debt crisis six years ago.  Take for instance yet another big move yesterday: a high-stakes winner-takes-all bet in Macau casino operator Melco Resorts (NASDAQ: MLCO). The complex strategy involved the sale of 14,000 April 19 puts for $0.60 and the purchase of 14,000 April 25 calls for $1.95. Don’t try that one at home!

Bottom line: Wednesday was a day of major rotation and options traders were moving at every turn.

 

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1. Reuters: Oil up 2 percent despite U.S. crude build; set for best third quarter since 2004. 9/20/17.