Options in Knight Capital suggest some see opportunity
* Early call buying spotted in options market on Knight Capital
* Heavy activity in August, September strikes
By Angela Moon
NEW YORK, Aug 2 (Reuters) - Knight Capital Group was one of the busiest names in the options market on Thursday as many investors bet on more problems at the market maker, but a number of wagers also suggested a possible rebound in its shares.
Technical problems at Knight caused a torrent of trades that sent dozens of stocks soaring, costing the company at least $440 million. Late on Thursday, Knight shares traded at $2.55, down $4.38, or 63 percent.
While buying of puts - generally considered bearish bets, expecting shares to fall further - was still active on the stock, whose price was the lowest since October of 1998, new positions that opened earlier in the day indicated a short-term rebound in Knight's shares.
"We see strikes today that we didn't yesterday, like the $4 and $6 strikes. While yesterday was just heavy put buying, today is more of a two-way flow," said J.J. Kinahan, chief derivatives strategist at TD Ameritrade.
"There were actually a good amount of call buying for August expiration, suggesting some people think the selloff yesterday and today is a bit overdone. Yes, Knight had problems but investors still think their core business is OK," Kinahan said.
But some were more concerned.
"The question is are they (Knight) going to end up filing for bankruptcy, will they be able to get out of this death spiral considering where the stock is and the amount of capital they have to raise," said James Dailey, portfolio manager at TEAM Asset Strategy Fund in Harrisburg, Pennsylvania.
Knight Chief Executive Thomas Joyce said on Thursday that the market-making firm had acted appropriately after the trading glitch and would like to maintain its business.
In early morning trade, 25,000 calls and 32,000 puts changed hands the options market. But in terms of buy and sell, there were more buyers of calls than of puts.
The most active options were the August $2.50 puts with almost 14,000 trades and the August $5 calls, with 10,500 contracts, according to TD Ameritrade data.
But while yesterday was "the sharks smelling the blood," Thursday's action was more divided, said Ryan Detrick, technical strategist at Schaeffer's Investment Research.
"Looking at today's activity, the majority of the action is in Aug and Sept, and it's put heavy. So the options players are expecting something to happen quickly, not buying a lot of time for things to play out," said Detrick said.
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