What’s up my fellow options traders. Swaggy is back with a few plays that caught my eye from last week in the unusual options activity segment.
LB – L Brands
On Tuesday this week a player rolled out their long call position to a further OTM strike price. They sold their position of 15,000 January 2021 calls at the $17.50 strike price and collected almost $7 million in premium. They then opened a new position in the same expiration with 15,000 calls at the $22.50 strike price. Their original position was 7% in the money, the position they rolled out to was 20%(!) out the money for January 2021 expiration. I’m not sure what initial amount of capital they entered the position with, however, they were willing to risk $4 million on a 20% OTM play. Personally, this is the kind of unusual activity I like to see if I am going to enter a position. Very interesting. It’s important to note from the graphic when someone rolls out a position vs entering a brand new position the sentiment will look the opposite. Usually they close out a larger position (in this case closing the original position was bearish), and enter a smaller position, but further expiration or strike price for less premium (in this case entering a new long).
PINS – Pinterest
PINS saw some notable bullish option flow come through this week. The largest position was on Wednesday where a player purchased 11k CALL contracts for November expiration at a strike price of $26 (3% OTM at the time). The position size was approx $4 million in premium. 11k call contracts, 3% OTM strike price, November expiration, all pretty bullish and qualify it for ‘unusual activity’. The stock has been pretty stagnant since reaching high point of $26.50 a couple weeks ago.
VXX – (VIX Short-Term Futures)
For those unfamiliar with VXX, it tracks VIX which is a volatility play. On Monday last week I came across some bearish activity, betting that volatility would go DOWN by September. Multiple directional bets were placed in LONG PUTS and also a BEAR SPREAD where they purchased a long PUT closer OTM and sold a short PUT further OTM to reduce the risk on the play. In my opinion, this week and next week’s earnings reports will provide us with guidance moving forward (as all companies refused to give guidance previously) and should ease the markets in terms of volatility. I think volatility might pick back up again as we get closer to elections and fall season of potential 2nd/3rd corona wave.
PTON – Peloton Inc
PTON has been a beast of it’s own having very high volume in option flow recently. This lucrative meme stock is expected to blow earnings out of the water and the stock price has nearly doubled in the last 2 months. Last week witnessed a slew of bullish call option activity. They ranged from large bullish bets at the money, to selling puts, and also one September 2018 bet for 1,000 CALL contracts with a premium of $330k and strike price of $80 (25% OTM). These are pretty directional bets with a high volume of contracts.
It looks like the one large ‘bearish’ sentiment activity could possibly be a fund selling a covered call on a larger share position. The strike price was $65 and 1.18% OTM at the time. If the stock stays above $65 they collect 1.18% return on the share position as well as pocket the $3.85 million in premium from selling the calls. Assuming they are covered calls that would mean the position size of the shares is 3k contracts * 100, or 300,000 shares. Also assuming a current share price of about $65 means their entire share position (or at least the amount covered by the calls) is about $19.5 million. The $3.85 million they collect in premium + the 1.18% they could collect if the stock stay above $64 ish would be a 20% return overall on the play. Keep in mind they collect the premium from the covered calls regardless if the stock goes up or down, as it provides protection.
Peloton reports earnings in 2 weeks.