After a rocky start, volume and volatility eased and trading turned relatively uneventful last week. The S&P 500 Index (.SPX) suffered a two-day 2.5 percent slide Monday and Tuesday, but battled back to finish down just 6 points on the week. Meanwhile, the CBOE Volatility Index (.VIX) edged down .77 points to a two and half month low of 18.81 and approximately 26 million puts along with 27.6 million calls traded across the US options exchanges. Volume was down 30.8 percent from week ago levels. Nevertheless, some noteworthy trades were seen including: Bearish spread trading in American International Group (AIG), a late surge in Petrohawk Energy (HK) calls, butterfly spreads on Comerica (CMA), strangle buying on the SPDR Consumer Staples Fund (XLP), and call buying in Charles Schwab (SCHW)
AIG Angst
American International Group (AIG) was one of 28 Dow stocks moving higher Friday. Only Exxon Mobile (XOM) and Chevron Texaco (CVX) lost ground. AIG wasn't a great performer; it rose just 9 cents to $19.87 and is trading only modestly above a 52-week low of $19.48 set the day before. In addition, one player in the options market appears to have made a substantial bet that the gains won't hold. Shortly after 11:00 Eastern time, with AIG trading for $19.66, an order for 7,750 AIG October 20 puts traded askside for $2.85 a contract on the NYSE. Meanwhile, the same number of October 17 puts traded bidside for $1.72 on the NYSE. Open interest in the 20s is 6,726 contracts and in the 17s, just 890 contracts.
Figure 1: AIG Bearish Spread Trading
Therefore, Friday's volume in those two puts seems to be an opening spread. In addition, it is probably a bearish one where the strategist is paying a net debit of $1.13 ($113 per spread x 7,750) and has the potential of making $1.87 if shares of AIG close at or below $17 a share at October options expiration (55 days). This trader might be on to something because after the closing bell, news broke that Fitch may downgrade AIG ratings on review uncertainties. Shares fell towards $19.60 in after hours trading Friday.
Late Week Spike in HK
Petrohawk Energy (HK) saw unusual action Friday. A flurry of buying interest surfaced in the September 35 and 40 calls in midday action. WhatsTrading.com noted the activity shortly before 14:00 Eastern time, when shares were trading down 4.5 percent to $32.43 and 18,700 of the September 35 calls had traded. By the closing bell, shares had recovered to $33.43 and volume in the September 35s had reached 26,900. Another 6,000 of the September 40 calls traded as well.
