B/E Aerospace, Inc. (BEAV) is a manufacturer of cabin interior products for commercial aircraft and business jets and distributor of aerospace fasteners and consumables. It also designs, engineers and manufactures customized fully integrated thermal and power management solutions for participants in the defense industry, aerospace original equipment manufacturers (OEMs) and the airlines. BEAV is currently trading around $76.66 in a 52 week range of $73.52 – 101.13. The company’s stock has been underperforming the market this year with shares decreasing 12% year to date.
Today, a trader bought 5000 BEAV Nov14 70.0 Puts for $2.15. This order involves laying out $1,075,000 in total premium. BEAV options traded 3.2x the average daily option volume today. The stock is getting hammered lately, with a sharp downward move in the recent past. BEAV is trading below the Ichimoku cloud, indicating further downward momentum for the stock, and this trader is most likely looking to capture this downward move. Given the short duration of these options, the move is expected to happen sooner rather than later.
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/1usQnKR or through the only Unique Unusual Options Activity Scanner: http://bit.ly/1sCSaws
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 Trade:
Buying the 1000 PCAR Feb15 67.5 Calls for $0.55
Risk: $55 for every 1 lot
Greeks of these Trade:
Delta: Long
Gamma: Long
Theta: Short
Vega: Long
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