For more information on how the Hotlist tool functions, refer to this article.
One name at the top of today’s OptionsHouse Hotlist is Altria Group MO. The stock is up 1.4% today, which is actually underperforming the 2.3% rally in the broader market. Almost 55,000 options have traded in the name already, and the most-active strike is the July 20 put, where more than 27,000 contracts have changed hands versus open interest of only 11,000.
Right out of the gate, large blocks changed hands between 68 and 70 cents per contract. In the first 90 minutes, these options were priced at 79 cents apiece. On the day, the put is down only seven cents while the stock is up 29 cents. The option’s delta suggests the puts should be lower by about 14 cents given the movement in the underlying, but buying demand seems to be inflating the price by raising the option’s implied volatility, now registering a 29% vol from the OH option chain. Put buyers can lose as much as 100% of the premium paid but have significant reward potential down to the zero mark if the stock falls below breakeven. Breakeven at expiration for the July 20 put bought at 68 cents would be $19.32.
Where better to enjoy a cigarette than on the open highway? Which brings us to another name on today’s Hotlist – Harley-Davidson Inc. HOG. There is big action today in the June 28 calls, as 8,400 contracts are trading versus open interest of 8,800. It looks as though traders are closing these calls which appear to have been sold in early June for much higher prices when the shares were trading much higher. If in fact this was a covered call strategy the premium received from shorting the calls helped mitigate some of the loss of the decline in the stock.
Other active HOG strikes today include the July 20 and 25 puts, each seeing more than 4,000 contracts change hands, and the July 30 call, which has seen volume of 11,400 today compared to open interest on 721.
A couple of hours into the trading session, the Dow is holding firm about 10,000, up 225 points today. The S&P 500 Index and the Nasdaq Composite are similarly strong, up more than 2% each, while the Russell 2000 Index of small-cap stocks is up 2.4%. The rally appears to be broad-based, as advancers are leading decliners 2,591 to 328 on the New York Stock Exchange.
Photo Credit: Bitman
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