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Unusual Option Activity from 6/6/2011

An increase in the trading of a stock's options over the normal daily volume is often a precursor of movement by the stock itself.  This is especially true in advance of news items, such as earnings reports or takeovers.

If there is unusually high volume in CALLS, then we look for a spot to buy the stock; if there is unusually high volume in PUTS, then the stock may be either a potential buy or a potential (short) sale.  The reason that heavy put volume may be interpreted as either bullish or bearish has to do with the fact that, if insiders are buying calls, it may force market makers to trade puts as a hedge.  Thus a bullish situation could conceivably have heavy option volume in both the puts and the calls.

Below is a table that is published each morning in The Daily Volume Alerts Newsletter, where we make trading recommendations based on unusual option activity.

OPTION VOLUME ALERT REPORT for OPTIONS TRADED YESTERDAY

Symbol

 Average Volume

 Volume Today

Call Volume

 Put Volume

 Stock High

Stock Low 

 Stock Close

Stock Change  

IV+/- 

BAP

219

1183

831

352

92.21

81.76

82.55

-19.13

53

BVN

1763

13055

4738

8317

38.22

35.72

35.75

-6.29

13

EPU

1875

6282

2988

3294

40

37.43

37.53

-6

0

SCCO

5381

29276

12096

17180

32.27

30.59

30.78

-3.94

22

CNW

303

2805

72

2733

36.31

35.63

35.67

-0.58

9

GPRO

2240

55616

44264

11352

81.8

70.41

71.41

-10.35

21

HOG

5706

21313

15544

5769

38.24

36.73

36.86

0.99

12

IPSU

529

2143

250

1893

22.22

21.24

21.74

0.21

22

TIN

1279

533

415

118

21.62

20.98

21.01

-0.68

11

UTHR

5486

26034

11482

14552

60.35

58.37

59

-3.7

-44

WDC

2786

12650

11523

1127

34.91

34.24

34.32

-0.64

7

Other High-Volume Situations: included some real drubbings in Peru-based copper companies, because of the result of the election in that country, for fear that the companies might be nationalized.

Harley-Davidson (HOG) – was a takeover rumor, even on a very bad day.  Stock volume patterns are poor.  There is support at 36-37.

Temple-Inland (TIN) – didn’t have much activity during the trading day on Monday, but after the close, TIN announced that they have received (and are rejecting) a $30.60 takeover bid from Int’l Paper (IP).  After that, TIN skyrocketed to trade as high as 38 before closing near 30 in after-hours trading.

United Therapeutics (UTHR) – has been on our high implied volatility list for some time, and the options were getting extremely expensive lately.  On Monday, the company announced the results of a Phase 3 drug trial.  They weren’t that unusual, and the stock only traded down about 3 points.  This is a extremely small reaction, considering how expensive the options were.

Western Digital (WDC) – was rumored to have canceled out of a conference, which always leads to speculation of a takeover bid.  Stock volume patterns are poor.  There is support at 34.

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