Summertime Options for Sale: Intel and JP Morgan in Focus

Earlier today, we discussed some potentially bearish option activity surrounding big financial names. Traders in JP Morgan Chase (JPM) are going against this trend, opting for a neutral-to-bullish (and longer-term) strategy.

The June 40 put has seen nearly 8,000 contracts change hands today. While this is a relatively small number of contracts for a stock like JPM, it is worth mentioning due to the longer-term status and the fact that open interest was just 2,687 this morning. In other words, these puts likely traded to open.

Shortly after the opening bell sounded, mid-sized blocks totaling 3,659 contracts changed hands between the bid and the ask price at $3.65. Then just before noon Eastern time, a block of 3,000 contracts hit the tape at $3.70 per contract, which was the bid price at the time.  It looks, therefore, like sellers were largely in control of these options.

Traders that sold these to open will retain the premium collected if JPM closes above 40 at June expiration in more than six months. Put selling is typically not done in later-dated months (as it benefits from time decay, but as Jud Pyle pointed out: “These longer-dated put sellers have two ways to win; they can be right on delta if the stock rallies or they can be right on vega if implied volatility declines … from a return on capital standpoint, they might feel that JPM shares are not going to rally by more than the credit collected for the put.”

Over in technology land, put sellers are active at the Intel (INTC) July 18 strike, which has seen 5,000 contracts trade versus open interest of 265. At 10:44 Eastern, two block trades – 1,000 and 4,000 contracts – changed hands at $1.40, between the bid and the ask price.

With the stock up 42 cents, the puts should be down about 12 cents (given its current delta) but they are in fact down about 18 cents currently. This is a tell-tale sign that these positions were sold to open. If Intel is trading below the 18 strike at July expiration, the put seller can buy INTC stock at an effective price of $15.60 per share.