I'll be the first to admit that my options experience could be improved.
At Barchart.com, I've been writing about options for over a year. I'll be honest: I'm learning every day. And I've been writing about stocks for more than a decade.
Options are tricky little buggers. Both the vocabulary and tactics are very foreign to most retail investors. There’s a reason why retail investors lose big in the options markets. It’s more sophisticated than buying fractional shares of Starbucks (SBUX).
Anyway, I was searching for a topic to write about for my Friday commentary. I saw that Las Vegas Sands (LVS) had the number one option based on unusual options activity.
However, that doesn’t mean you should buy some of the call options in question. Here's why.
Have an excellent weekend!
What the Heck Is a SLAN?
As I said, the Dec. 12 $50 call is the number one option in Friday trading with a volume-to-open interest ratio of 355.45x. Volume is 46,564 with an open interest of 131. With 126 days to expiration, the ask price is $8.65, which means it’s got to move up to $58.50 by December 12 to make it worth your while to exercise your right to buy 100 shares.
Given it’s trading at $56.11, that doesn’t seem like a bad risk/reward proposition. It must increase 4.3% over the next 18 weeks to be in positive territory on your shares.
So, you make a downpayment of 17% on the $50 strike, and you’re off to the races. Not so fast.
Let’s consider the trade that pumped up the volume on the Dec. 15 $50 strike.
As I look at the Barchart.com data, there was a trade at 10:27 on Friday for 46,000 call contracts on the Dec. 15 $50 strike. As I write this, the volume is 46,564, so the one trade represents 98.8% of the day’s volume.
At first, I thought a whale was in on the action. However, as I looked more closely at the individual trades, I noticed that the trade condition was SLAN, which stands for Single-Leg Auction Non-ISO.
Barchart’s Options Time & Sales Trade Conditions page says the following about SLAN:
“Single Leg Auction Non ISO Transaction was the execution of an electronic order which was stopped at a price and traded in a two sided auction mechanism that goes through an exposure period.”
That could be written in Russian. What exactly does it mean?
Here’s what The Blue Collar Investor investor has to say about non-standard options:
“These are options that don’t have the standard terms of an options contract, namely 100 shares as the underlying asset. They are normally created as a result of a specific event such as a merger, acquisition, spin-off, extraordinary dividend or stock split.”
He uses the Bank of America’s (BAC) acquisition of Merrill Lynch to explain how they differ from standard options. Be honest. Did you even know there was such a thing?
Now back to the Dec. 12 $50 call.
If you look at the price history, you’ll see that the last time this call traded was on July 21, with a volume of just 15 contracts. The day before that, it was 17. You have to go back to June 16 for another day of double-digit volume. Between April 20 and today, there have been three days with volume over 20: June 8 (25), June 13 (65), and Aug. 11 (46,571).
Does something seem peculiar about the volume disparity? You bet.
What About the Whale?
I’m a novice in the world of options. If there’s one thing I’ve learned from writing about stocks for so long, I know how much I don’t know.
As I said in the previous section, I thought it was a whale executing a trade. My suspicions peaked when I noticed a trade for 36,664 calls for the Sept. 15 $45 strike. I’ve scoured my online resources to find any news explaining the two large buys. I’ve found little. One site suggested it was a trader rolling their position on LVS to capture more upside on the stock.
That’s a plausible explanation, I suppose. However, LVS is only up 14% year-to-date, less than S&P 500. That said, the casino operator’s stock has gained nearly 50% on the year, 9x the index, so it is on a roll that could keep going.
Analysts think it will.
The 11 analysts that cover it, according to Barchart.com data, rate it a Strong Buy (4.55 out of 5) with a mean target price of $70.90, well ahead of its current share price.
You would think regular investors would be all over LVS options. As Friday progressed, investors appeared to have noticed the big trades. Volume at 1:26 ET is 116,264, 5x the 30-day average volume. If you exclude the 46,000 trade, it’s still 3x larger.
The game is afoot.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
