Notable Option Volume in Activision (ATVI) and Saks (SKS)

SKS)" src="http://oh-image.s3.amazonaws.com/August/100820SKS.jpg" border="0" alt="Notable options activity in Saks (SKS)" width="300" height="201" /> The Hotlist, a scan of unusual option volume, is available to all OptionsHouse customers, including those with a virtual trading account. For more information on how the Hotlist functions, refer to this article.

Saks Inc. SKS is an unusual name on today’s Hotlist and the upscale retailer seems to be the object of a call trader’s affection. More than 26,000 contracts have traded in SKS today, compared to typical average daily volume of about 2,000.

The August 7.50 calls, which expire today, have seen about 13,300 contracts trade on open interest of more than 15,000. The November 7.50 call, meanwhile, has seen the same amount of volume compared to open interest of just 836. All signs point to this being a huge roll of these at-the-money calls.

It seems as though the investor sold to close large blocks of the front-month position, collecting an average of 18 cents or so, and simultaneously opened new long calls in the November series. The November calls traded for an average of 83 cents, so the net purchase price was around 83 cents, so the net purchase price was around 65 cents per roll.

The investor will now be long the November 7.50 calls, which have unlimited upside potential if the shares rally. The most a long call buyer can lose is 100% of the premium spent (plus commissions). Breakeven for the November call is approximately $8.33, or the strike price plus the 83-cent premium.

Also exhibiting notable volume on this expiration Friday is Activision Blizzard ATVI. T he video-game concern is seeing a risk reversal (also known as a synthetic long stock position) trading between the January 10 put and January 15 call. More than 25,000 contracts have traded on both strikes.

With ATVI down four cents today at $10.97, the put and call are both out-of-the-money (but the call by a heftier margin). Evidently the trader is selling the puts and buying the calls, collecting a net credit of 41 cents. The volume hit the tape in one block of 25,000 around 10:45 a.m. Eastern Time. The calls traded for 11 cents apiece while the puts changed hands for 52 cents.

If ATVI is trading between the strike prices at expiration, the investor simply keeps this credit as profit. Above the 15 strike, gains are theoretically unlimited. Below the downside breakeven of $9.59, however, losses are also unlimited down to the zero floor.

At the same time this spread was trading, a block of 900,000 ATVI shares traded for $11 per share. It is possible the same investor is shorting the stock to create a delta-neutral trade, which will react more to shifts in volatility. Currently, 155 days from expiration, the trade still has a positive directional bias and should increase in value as the stock gains ground.

Photo Credit: Paul Lowry

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