Auto-Related Stocks Bounce on Oil's Drop

Automobile stocks continue to harvest relief gains on Wednesday as the decline in oil prices endures, but option traders aren't rushing to relinquish defensive or speculatively bearish positions in related companies just yet.

Shares in the auto parts supplier ArvinMeritor (ARM - commentary - Cramer's Take) rebounded 4% to $11 in early trading, as we noted an increase in option trading volume to 8.6 times the normal level. This appeared in a 5,000-lot position at the August 12.50 line, which appears to have been bought on the call side for 55 cents and sold to the bid on the put side for $1.95. This looks to us like a short conversion strategy in which the trader may have sold short the stock, bought the call and sold the put against that underlying position in an overall bearish view on the underlying stock.

In another car industry play, shares in BorgWarner (BWA - commentary - Cramer's Take), the maker of powertrain components for car engines, rose 8% to $40.15 today as its options registered an early volume increase to 11 times the normal level.

Early on, we observed what looked like August strangle activity ahead of BorgWarner's July 31 earnings release, but it now looks like the 2,000-lot position we saw in the August 35 puts were bought independently at $1.35. This may have been funded in part via a 2,000-lot short call spread between strikes 40 and 45, which would have generated a 63-cent credit for the trader with the proviso that shares not break the $40 mark by Aug. 15.

Corroboration

The defensive indications we're seeing in the likes of ArvinMeritor and BorgWarner today appear consistent with action yesterday in AutoNation (AN - commentary - Cramer's Take), the nationwide car dealership chain. Despite substantial relief gains for major automakers, shares slumped 6.4% to $7.58 yesterday as we registered an increase in option trading volume to 28 times the normal level, due to a massive, 31,000-lot position in October 5.0-strike puts.

---

At the time of publication, Darst had no positions in the stocks mentioned.

Rebecca Engmann Darst is an equity options analyst for Interactive Brokers in Greenwich, Conn., and is the author of its daily "Options and Futures Intelligence Report." Each Thursday at 6:30 a.m. EST, she delivers the early-morning lowdown on option volume and sector trends on CNBC's "Squawk Box." She also appears on BNN Canada and has been a guest on Fox News' "Your World With Neil Cavuto."

Prior to her work in the equity options market, she spent seven years in Scandinavia as a Copenhagen-based chief reporter for a European Commission news service, correspondent for Spanish daily El Mundo and Radio Netherlands, followed by stints at Nordea Bank and Saxo Bank.