Monday, May 17, 2010

Technology Select SPDR (XLK) - Enormous Call Volume... Again...

XLK (Technology Select SPDR) is trading 22.28 with IV30™ up 6.8%. The LIVEVOL™ Pro Summary is below.

The company has traded nearly 87,000 options on total daily average option volume of just 13,995. All but 2,611 contracts have been calls for a 33:1 call:put ratio. The largest trades are Jun 24 call purchases 85,000 times (not a typo). The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

The Options Tab (click to enlarge) illustrates that at least a good portion of the calls are opening (trade volume > OI). You can also see the vol in Jun is up about 1.7 points.

Clicking on the Level 2 pop-up we can see that the substantial portion of the OI was opened on Friday (click to enlarge).

Looking at the Time & Sales Tab for those calls on that day (click to enlarge) and filtering for trades >= 1000 lot, you can see that they were substantially purchases.

Note some of the "red" colored trades are on locked markets so trading on the bid doesn't mean anything.

The Skew Tab snap (click to enlarge) finishes out the trade - we can see the 24 strike vol relative to the other lines (and months).

All three of the back months (Jun, Sep, Dec) converge vols on that line. The Skew is downward sloping (smirk) - which is a normal shaped skew. To read why skew exists and what "normal" skew is you can click here.

Even though the size has been huge - looking at possibly over 100,000 open interest (long) or the right to purchase 10 million shares, the price is pretty low (these are ~$0.15 options). It's a big bet in terms of contract size; total cost of 100,000 options is: 100 x 100,000 x $0.15 = $1,500,000.

The stock volume stats (click to enlarge) demonstrate that the underlying has been more active than average.

It's possible these calls are trading with stock (buy call + sell stock = buy put) but, it's almost certainly not 1:1 as stock volume isn't that high relative to average. The 52 wk. high in this SPDR is 24.16 so if this is a pure long bet - it's looking for XLK to break it's year high within the next month.

If the calls are turned into puts, they are 82 delta (deeps). My best guess is that these are long bets and the extra stock volume is market makers covering some deltas. Keep in mind, these are $0.15 calls...

If unhedged, this bet makes $10,000,000 for every dollar above $24.

This is trade analysis, not a recommendation.

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