Bears preparing to hammer Exelon
(The following is an example of notable trading cited on optionMONSTER's InsideOptions Pro service yesterday.)
The bears are hammering utilities such as Exelon as interest-rate fears build.
optionMONSTER's Depth Charge monitoring program detected heavy buying in the August 33 puts yesterday, starting with 5,000 for $1.60 to $1.90. Open interest stood at just 552 contracts when the session began, which means that new positions were initiated. Volume ended the session north of 10,000.
Long puts lock in the price where investors can sell a stock, so they move in the opposite direction of the shares. Investors use them to hedge long positions or to speculate on a drop. (See our Education section)
EXC fell 4.70 percent to $31.24 yesterday, the biggest decline in S&P's utility group. The August 33s also rose more than 10 percent to $2.15 from that move, which illustrates the leveraging potential of options.
Yesterday's selloff in utilities came after U.S. jobless claims fell more than expected and hit their lowest level since 1973. That, combined with good housing data recently, made investors expect the U.S. Federal Reserve will raise interest rates sooner rather than later. Such a move would hurt utilities, which are valued as so-called income trades for their dividends.
Overall option volume in EXC was 11 times greater than average in the session, with puts accounting for a bearish three-quarters of the total.
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