MasterCard (MA) ripped higher off the open today again. The stock is up over $3.00 since yesterday’s open. Traders are getting behind the move bidding the stock up $0.66 overnight and placing bigger bets in the options market in this morning’s session. One trade came across the tape for $81,000 worth of options expiring next Friday. This is not an earnings play because MasterCard is scheduled to announce earnings at the end of the month. Buying this kind of short-term premium is a very bullish sign because time will eat away at the value of these calls unless MasterCard trades above $80.63 by next Friday’s close.

The trader is predicting the stock will get bid up to $80.00 in little over a week which is very possible given the recent volatility in the name which is only making the options more valuable. This move was the beginning of a trend reversal in which MA finally broke through the top of the cloud.  The forward looking portion of the Ichimoku cloud chart is providing support around $76 but the stock is trading well above all support levels right now and wants to push higher. MasterCard is down over 7% YTD, but based on this activity, investors who get long now could see big gains in the second half.

The Trade

Buy 7/25 Weekly 80 Calls for $0.57

Breakeven: $80.57

The Greeks

Delta: Long

Gamma: Long

Theta: Short

Vega: Long

Allot Communications (ALLT) is trading around $13.00 and could be looking to break to the upside soon. We’re seeing big bets come across the tape today with traders getting long ALLT. The stock has strong support just below the $13.00 level and continued consolidation on volume would be indicative of a potential breakout. Look for that to happen over the next month or so, possibly sooner.

The stock is down 14% on the year so far but has found buyers recently. It has been trading in a 52-week range of $11.52-$18.09. Though it is trading below the cloud currently, we use the unusual activity and volume to determine that this might be a good time to get long ALLT.

The Trade:

Buy ALLT Dec 12.5 Calls for $1.95

Breakeven: $13.45

Risk: $195 per lot

Greeks

Delta: Long

Gamma: Long

Theta: Short

Vega: Long

Popular, Inc. (BPOP) is a bank holding company with operations in Puerto Rico and the United States. The company’s stock is currently trading around $32.25 in a 52 week range of $23.97-$34.80. The stock has been doing very well this year with shares gaining 19% year to date. The stock has been in a tight trading range since making new 52 week highs on July 1^st. As the stock continues to consolidate we have seen some interesting options activity in the name. Earlier this morning a trader bought 7,500 of the BPOP Jan 32 puts for $1.80. This is the largest order to hit the tape today in BPOP and overall option volume in the name is nearly 11 times average daily option volume. While a large put buy like this can seem very bearish in this case it does not necessarily mean this trader is taking a speculative short position. Puts are bought either to get short or protect a long stock position. In this case, with BPOP just off of 52 week highs it is more likely this trader is buying these puts against long stock after a strong run higher. A large percentage of equity options market participants are hedgers and most market participants are long stocks. Traders need to keep this in mind as they watch the tape. Orders cannot always be taken at face value and often times a trader must consider other factors to determine if an order is speculative. This is a key skill to develop for anyone trying to trade using unusual options activity.

Unusual Option Activity:

We define unusual option activity as large block trades that represent a large percentage of daily option volume. The block trade is considered “unusual” if the option volume is above the average daily volume over the past 22 days. At KeeneOnTheMarket.com we scan and analyze order flow from all of the major options exchanges in order to identify any unusual option activity.

Analyzing unusual order flow gives traders a window into what the positions that large institutional players have. The majority of unusual option activity can be traced back to hedge funds, mutual funds, and other large institutions. Knowing where these institutions are placing their bets can be hugely advantageous for any trader. These institutions have informational and technological advantages that the average trader doesn’t have, and the amount of time and analysis that goes into every one of their trades is substantial.  We offer this service through our 7 hour daily LIVE trading room http://bit.ly/135QWt8 or through Premium Twitter feed with all entries, exits, and unusual options activity tweeted all day long: http://bit.ly/11f0L9u .

Order flow can however at times be deceiving. One might logically thing that a large block buyer of calls is bullish on the underlying. This is not always the case. Remember that a large number of participants in the equity options market are hedgers. Long calls are a hedge against short stock, and long puts are a hedge against long stock. With this in mind we have developed a 7 step trading plan that helps filter out unusual option activity that will not provide actionable trade setups. It is by using this plan that we are able to identify the most significant unusual options activity trades every day.

The “Institutional Trade”: A trader bought 7,500 BPOP Jan 32 Puts for $1.80
Risk: $180 per 1 lot
Breakeven: $30.20

Garmin (GRMN) shares are down over $3.50 today on a downgrade from Pacific Crest and are currently trading at $57.10. We’ve seen some bullish activity coming across the tape today. Traders are buying Aug 60 calls. This is a good example of how difficult it can be to determine whether order flow is speculative or for hedging purposes. Pacific Crest gave a price target in the mid $40’s for Garmin, citing an inability to remain relevant and competitive with giants such as Samsung and Apple in its personal navigation devices and other products. If this order flow is indeed speculative, it would likely be a short-term bet.

Garmin is trading off its 52-week high of $62.05 but has performed very well on the year despite the recent bad press, up over 30% YTD. The charts are ugly for bulls as the stock is trading below all significant levels on the Ichimoku cloud. This could be seen as a buying opportunity as the stock has found some buyers around the $57.00 level. Coupled with the activity in the Aug 60 calls we have seen, the charts could be indicating a nice spot to get long Garmin for a short period.

The Trade:

Buy the Aug 60 calls for $1.30

Risk: $130 per 1 lot

Breakeven: $61.30

The Greeks

Delta: Long

Gamma: Long

Theta: Short

Vega: Long

TS

Tenaris SA (TS) is fresh off of an upgrade at Goldman Sachs, from “sell” to “neutral” and Guggenheim applied a price target of $55.00. The pipe manufacturing company based out of Luxembourg is trading $48.03 today, up 11.79% on the year. A lot of activity came across the tape last week and the stock gapped up Thursday before the holiday weekend after news of its winning a contract with Brazilian energy giant, Petrobras. Tenaris has been able to sustain last week’s gainsand is trending higher.
Currently, TS is trading above the cloud looks to increase its cushion. The stock reached its 52-week high overnight Thursday and will be looking to test that level again this week as it creeps higher after a slight selloff. On the daily chart, TS is in what looks to be the middle of a big move to the upside that began in mid-May and has seen almost $6.00 in gains. If the broader market trends continue, we can definitely look for TS to see some more upside. Let’s take a look at a trade:

The Trade

Buy Aug 50 Call for $0.95

Risk: $95 per 1 lot

Breakeven: $50.95

Greeks:

Delta Long

Gamma Long

Theta Short

Vega Long