During last week's trading ended 24 Feb 2012, we saw NCM hitting a recent high of $36.10 on Thursday. This has been a good run for NCM from $31 since early January 2012. (roughly 16% gain).
The strength in the NCM's share price last week coincided with a very strong week in call options trading. Trading in calls mirrored the trend of the stock and peaked on Thursday. Total increase in calls traded was significant. There were about 120,000 call contracts traded in the week, much more than the weekly average of about 40,000 contracts. But, on Friday, there was a switch in trading. Calls dropped off in volume heavily whilst puts increased. This signaled long positions being closed and trading on the long side of the stock lessening.
Looking at the other side of the options trade, the puts, especially those on Friday as puts picked up on Friday, were not all protective trades or buying of puts for downward play on the stock. Some of the large transactions on the puts side were attributable to a bullish strategy called bull put spread, with selling of the put at the $34.51 strike. This is coupled by larger quantities of calls for a bull call spread with the selling at the $35.30 call strike.
The options actions in NCM seem to be signaling a cooling off on the long side and a big plunge is not necessarily expected to follow. This is also observed from the stock’s Implied Volatility, which is very flat on both the calls and puts compared to their historicals.
The indicators are giving a hint of a stock that is likely to trade in a small range for a while before deciding which way to go. So, unlikely to try for $36 again in the short term, but more likely to hang around the $34/$35 levels. Selling options is most lucrative for stocks displaying this pattern.