Options Trading News: Bullish Betting on Banking Stocks
Banking ETFs Gain 11% and Options trading Investors Take Notice
(Barron’s and Forbes)
On Friday, financials powered higher thanks to renewed optimism over US employment data along with signs of progress with Europe’s debt crisis. In fact, the PowerShares KBW Bank ETF (KBWB) rose 3.4% on Friday and had its best week of gains since August 2009 – finishing up 11.6% for the week. The Financials Select Sector SPDR (XLF) also broke a four-week losing streak while Morgan Stanley (MS) gained 7%, Citigroup (C) gained 4.4% and Goldman Sachs (GS) gained 3%. 
More importantly, bullish options trading also soared with some of the heaviest trading action being seen in Bank of America (BAC) as traders purchased large blocks of calls granting the right to buy the stock at the $6 strike price by December 16. Bank of America’s stock also rose 2% at $5.64 a share although its shares have lost more than half their value this year.
JPMorgan (JPM) also rose 6.1% on Friday with December $34 call options being purchased by traders who can then swap these options for shares at a profit if the stock rallies above the strike price over the next two weeks.
In addition, bullish options trading activity was also seen in Goldman Sachs (GS) as options traders traded more than 5,900 calls at the Dec. ’09 $105 strike price. These investors may profit at expiration next week should Goldman Sachs surge around 6% to rise beyond an average breakeven point at $106.05.
Brokerages Look to Options Trading as Stock Trading Volume Falls
(Bloomberg Businessweek)
Online brokerages such as TD Ameritrade, Schwab, Fidelity Investments, E*Trade Financial and Scottrade are hoping to expand their businesses beyond equities and into options trading as stock trading volume sags. Options are also appealing to investors and traders alike because they are well suited for volatile market conditions plus they help hedge stock portfolios against declines.
Moreover, competition to attract and retain active traders has intensified. However and while about 21 million US households held stocks outside retirement accounts in 2009, less than 10% of these households are active traders. 
On the other hand, options have been described as one analysts as a kind of crack cocaine for brokerage firms because they are easy money, can earn huge commissions and can be extremely addictive for traders.
In fact, options trading volume has risen every year since 2002 plus has risen 22% through October. On the other hand, equity trading volumes on the New York Stock Exchange has fallen 14% and 9.1% on the Nasdaq.
Meanwhile, a survey by the Options Industry Council found that option buyers averaged 31 trades a year verses 24 for other investors. Moreover, options trading usually comes with higher commissions. For example: TD Ameritrade charges $9.99 for an online stock trade while option orders can cost $9.99 plus 75¢ per contract with some clients being charged a $19.99 commission when they exercise their options.
Industry trading heavyweights are also buying smaller rivals or they are busily expanding their in-house capabilities. In fact and about two and a half years ago, TD Ameritrade, which is also the number 3 online brokerage in the US, paid about $750 million for options trader Thinkorswim in order to acquire 87,000 retail client accounts.
Options Trading Volume Falls in November
(MarketWatch)
November’s average daily options trading volume declined from the prior year. Specifically, around 16.4 million puts and calls were traded on US exchanges daily during November – lower than the 16.9 million contracts that were traded in November 2010.
In addition, November’s daily volume count was lower than the 18.3 million daily average for 2011 plus it was the the lowest since December of last year.
On the other hand and despite any November volume slip, activity in the options trading market has continued to break records with the annual options volume setting a record in 2011 for the ninth consecutive year in a row. In fact, yearly options trading volume surpassed 4 billion contracts for the first time in November.
Muted Options Trading on American Airlines
(Reuters)
The parent of American Airlines, AMR Corp, sank 80% to 32 cents with more than 125 million shares being traded after the company filed for bankruptcy.
However and while stock trading volume in AMR surged, options trading volume was relatively muted with 40,000 contracts or about twice the recent average daily volume. Apparently, options traders have no reason to trade a 34 cent stock while Citigroup cut their ratings on the stock to sell and set price target to zero.
Options Trading Bears Descend on Anheuser-Busch InBev NV
(Bloomberg)
As Anheuser-Busch InBev NV, the world’s biggest brewer, sells less beer in North America where it has its biggest market by revenue along with market share declines, options trading investors are paying the most in five years to buy bearish put contracts. In fact, puts to sell Anheuser-Busch InBev NV cost 46% more than calls to buy – the highest ratio since February 2006 and more than triple the 13% level back in March. 
Apparently, investors are protecting themselves in case Anheuser-Busch InBev NV shares should decline. In fact, shares have risen 6.8% in the past six months – making the stock one of only three stocks to have gains in the Euro Stoxx 50. Moreover, the stock has rallied 25% from this year’s lowest point on August 10 – making it the third-biggest gainer in the Euro Stoxx 50 Index since that date.
Despite declining sales in the USA due to high unemployment among young men, analysts say that other consumers aren’t going to stop drinking beer just because of a recession plus Anheuser-Busch InBev NV still has strong beer-market leadership.
Category: Online Options Trading
