After the automaker's sharp pullback, one spread trader adjusted a four-legged trade
Options are unusually active today on Italian automaker Ferrari NV (NYSE:RACE), with call volume surging to 3,155 in the first 90 minutes of the session -- nearly nine times the stock's average daily volume of just 355 contracts. In focus are a pair of out-of-the-money October strikes, with some of the volume tied to a bearish spread strategy.
Specifically, International Securities Exchange (ISE) data (via Trade-Alert) shows customer-side buy-to-close activity at the RACE October 170 call, with two blocks totaling 1,135 contracts crossing the tape shortly after the open this morning. Simultaneously, matching blocks of RACE October 175 calls were sold to close, per the ISE.
Based on this activity, it appears one trader today is closing out a bear call spread on RACE -- a credit spread strategy designed to achieve maximum profits if the stock closed anywhere at or below the 170 strike ahead of October expiration. Ferrari shares appear to be well on pace to stay south of $170 over the short term, technically speaking; the stock recently broke below its 80-day moving average, and are now bumping into resistance at the $155 level.
Looking back, today's freshly closed short call spread appears to have been entered back on Aug. 26 as part of a combination bear spread, paired with a long put spread at the October 140 and 145 puts. That half of the spread remains open, with no major changes to open interest at those two strikes in the intervening weeks, and no significant volume as of yet today.
More broadly, puts have been in heavy rotation on RACE lately. During the past 10 days, traders across the ISE, Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 5.79 puts for every call on Ferrari shares -- a ratio that outranks 98% of others from the past year. In other words, speculative players have rarely shown a greater appetite for bearish bets over bullish.
However, short-term volatility expectations remain modest. Schaeffer's Volatility Index (SVI) of 24% arrives in the tame 15th percentile of its annual range, indicating that October-dated options have been cheaper, from an implied volatility standpoint, only 15% of the time in the last year.
RACE is off 9.7% from its mid-July closing high to trade at $152.64 today. The stock suffered a big bear gap on Sept. 10, but the automaker has so far held its footing at the round $150 level -- home to its June 7 post-bull gap intraday lows.