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 1st. 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
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