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Tuesday, August 16, 2022


Litany Of Woes Sparks Renewed Bearish Options Trades On Inverse ETF

Today’s tickers: SH, CLX, NABI & HWD

SH – ProShares Short S&P 500 – Bearish investors are scooping up calls on the ProShares Short S&P 500 ETF this morning with 95% of stocks in the U.S. benchmark Index trading in the red today. Shares in the SH, an exchange-traded fund designed to correspond to the inverse of the daily performance of the S&P 500 Index, are up 1.45% to arrive at $41.55 as of 12:00 pm on the East Coast. Investors exchanged more than 8,000 calls at the August $44 strike against previously existing open interest of 2,231 contracts. It looks like most of the calls were purchased for an average premium of $0.25 a-pop. Perhaps call buyers are hedging long exposure to the index, or snapping up the calls to take an outright bearish stance on the near-term performance of the Index. The ongoing debt crisis in Europe, mind-numbing squabbling amongst U.S. lawmakers tasked with raising the debt ceiling, and concerns the economic recovery continues to soften are weighing down equities today. Signs that any of these factors are worsening could send the S&P 500 Index lower to the delight of call buyers. Investors holding the August $44 strike calls profit if shares in the SH rise 6.5% to exceed the effective breakeven price of $44.25 by expiration next month. The SH last traded above $44.25 back in December 2010, when the S&P 500 Index was hovering around 1243. Meanwhile, traders casting doubt on the likelihood of a sharp correction in the Index through August expiration sold around 1,500 calls at the August $45 strike to pocket an average premium of $0.15 each. Call sellers keep the full amount of premium as long as the contracts expire worthless at expiration next month.

CLX – Clorox Co. – A sizable ratio put spread on the maker of cleaning supplies and Hidden Valley Ranch Dressing indicates one strategist is positioning for limited bearish movement in the price of the underlying shares through August expiration. Clorox Co.’s shares surged last week after activist investor Carl Icahn made an unsolicited offer to buy the company for $76.50 a share, or $10.2 billion. Put activity on CLX today suggests at least one player does not expect a deal between the company and Icahn or another potential bidder to solidify in the near term. Shares in Clorox are currently down 2.15% to stand at $72.94 as of 12:30 pm ET. It looks like the options player picked up 4,000 puts at the August $70 strike for a premium of $0.95 each, and sold 8,000 puts at the lower August $67.5 strike at a premium of $0.30 apiece. Net premium paid to initiate the spread amounts to $0.35 per contract. Thus, the investor profits if shares in CLX drop 4.5% from the current price to breach the effective breakeven point on the downside at $69.65 by expiration day. Maximum potential profits of $2.15 per contract are available to the trader in the event that Clorox’s shares slide 7.5% to settle at $67.50 at expiration next month. CLX shares exceeded $67.50 for the better part of July before the recent buyout bid from Icahn sent shares up to record highs. Options implied volatility on the stock retreated 17.2% to arrive at 20.27% in early-afternoon trade.

NABI – NABI Biopharmaceuticals, Inc. – Shares in the biotechnology company plunged 72.5% to a 13-year low of $1.55 after the company said its vaccine for nicotine addiction, NicVAX, failed to assist smokers in quitting during the first of two Phase 3 clinical trials aimed at evaluating its effectiveness. Open interest patterns in NABI call and put options suggest some investors are sitting pretty following the nose dive in the price of the underlying, while others saw the value of their previously established positions collapse. August $5.0 strike put buyers responsible for generating the majority of the 733 contracts of open interest at that strike may take a bow. It looks like investors purchased 300 August $5.0 strike puts at the end of June for an average premium of $0.71 each, picked up another 120 contracts in the first week of July at an average premium of $0.50 apiece, and bought some 250 put options at that strike for an average premium of $0.425 a-pop last week. The steep drop in the NABI’s shares today lifted the value of the puts nearly 600% to an asking price of $3.40 per contract as of 11:20 am ET. Meanwhile, call buyers have seen the value of their positions hemorrhage. December $5.0 strike calls, which were in-the-money as of the close on Friday, may be purchased today for just $0.15 each. Open interest at that strike indicates traders purchased around 740 calls for an average premium of $1.89 each during the first couple of weeks of July. Similar destruction of call-buyer value occurred in the December $7.5 strike contract where some traders appear to be holding calls purchased for an average premium of $0.83 apiece back in mid-June. Selling the deep out-of-the-money calls today yields a meager $0.05 in premium per contract.

HWD – Harry Winston Diamond Corp. – The supplier of rough diamonds to the global market popped up on our scanners due to heavier than normal activity in its put options. Shares in Toronto, ON-based Harry Winston are trading 0.60% lower this afternoon to arrive at $17.02 by 12:45 pm ET. The stock rose modestly at the end of last week after the company said second-quarter diamond production at its Diavik mine increased as compared to the same period in the previous year. Though shares in the diamond company are lower today, it looks like some options traders are betting the price of the underlying won’t fall too much further during the next five weeks. More than 2,700 puts changed hands at the August $15 strike in the first half of the trading session against open interest of just 50 contracts. It looks like nearly all of the put options sold for an average premium of $0.15 a-pop. Put sellers keep the full amount of premium received as long as shares in Harry Winston exceed $15.00 through expiration day next month. HWD’s shares briefly dipped below $15.00 as recently as June 9, but have mostly exceeded that price level consistently since the end of March 2011. The overall reading of options implied volatility on the diamond producer declined 11.6% to stand at 39.01% this afternoon.


Andrew Wilkinson

Senior Market Analyst


Caitlin Duffy

Equity Options Analyst


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